Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — ROYAL AIR FORCE

Ballistic Missiles

Mr. Frank Allaun: asked the Secretary of State for Air if the intermediate-range ballistic missiles now being installed, and about to be installed, in Great Britain can be recalled or blown-up in mid-air if discovered to have been launched in error.

The Secretary of State for Air (Mr. George Ward): Procedures for handling and control of these missiles are such as to ensure that they cannot be launched in error.

Mr. Allaun: But is it not a fact that if they were launched in error there would be only fifteen minutes in which to discover the error—a far shorter time than was available when American bombers, launched in error against the East, were recalled over the Pole? Will the Minister consider the Labour Party proposal that no further steps should be taken to build these bases until a fresh attempt has been made to negotiate with Russia at top level?

Mr. Ward: No, Sir. I have already assured the House that handling procedures are such that these missiles cannot be launched in error. Therefore the question does not arise.

Mr. G. Brown: Will the Minister explain how he can be so sure that these missiles would not be launched in error? Unless he is saying that no missile will be launched until after we have been hit, how can he guarantee that a case would never occur when we would launch a missile and, on second thoughts, prefer that it had not been so launched?

Mr. Ward: The arrangements agreed between the Government of the United States and Her Majesty's Government ensure that a missile can be launched only on a joint decision of the Prime Minister and the President, and this would be done only if the facts were indisputably clear.

Mr. Frank Allaun: asked the Secretary of State for Air who has the final decision over launching the missiles now being installed in Great Britain.

Mr. Ward: As stated in the White Paper published last February—Cmnd. 366—the decision to launch these missiles would be a matter for joint decision by Her Majesty's Government and the United States Government.

Mr. Allaun: What does that really mean? Is not it obvious that Parliament could not be consulted? There would not be time even for the Cabinet to jump into their taxis. As Mr. Dulles has said, the decision would have to be taken by the military commander in the field, on the spot. In view of the recent public poll, which showed that a majority of people were against these bases in any case, will the Minister stop work on them?

Mr. Ward: No. What it means is that the decision to launch these missiles will be taken in exactly the same manner as we laid down in the arrangements for taking decisions under the Attlee-Truman agreement.

Mr. G. Brown: In view of the fact that the missiles which are sited here can act as an attraction to an attack upon us, will not the Minister consider giving a flat assurance that the final word will always be with the British Government, and not with somebody else?

Mr. Ward: These weapons are a joint deterrent between the British and the Americans, and the decision to launch them would be a joint one.

Aircraft (Nuclear Bombs)

Mr. Swingler: asked the Secretary of State for Air if, in view of the orders issued by the United States Government banning the carriage of nuclear bombs by aircraft flying over United States territory, he will now issue orders to stop the carriage of nuclear bombs by aircraft flying over the United Kingdom.

Mr. Ward: I understand that the United States Government have issued no orders of this kind.

Mr. Swingler: Is not the Secretary of State aware that the American delegation at the conference on surprise attack at Geneva declared that the United States military authorities had now prohibited the carriage of nuclear bombs over American territory? Will he inform himself of this situation—which I can assure him is a fact—and ask himself why we should carry on with a dangerous and provocative practice when the Americans have stopped it?

Mr. Ward: I am assured by the Americans that no such orders have been issued.

Freighter Aircraft

Mrs. McLaughlin: asked the Secretary of State for Air if a decision has now been reached on the type of aircraft to be used as a successor to the Beverley.

Mr. Chetwynd: asked the Secretary of State for Air when a decision will be made on the provision of a long distance freighter for the Royal Air Force.

Mr. Peyton: asked the Minister of Defence what proposals he has for the provision of a long-range freighter aircraft for Royal Air Force Transport Command.

Mr. Ward: I will, with permission, answer together this Question, Question No. 11 and Question No. 93 addressed to the Minister of Defence, to which I have been asked to reply.
My right hon. Friend the Minister of Defence will be making a statement on this question shortly.

Mrs. McLaughlin: Surely the Minister is aware that this procrastination in taking a decision upon a successor to the Beverley is causing grave concern throughout the aircraft industry, especially those members of it, such as Messrs. Short Brothers and Harland, who believe that they have the answer in regard to the successor to the Beverley? Surely the time has come to take a firm stand and come to a decision, and to honour those agreements which we believe are to be made, so that the aircraft industry may get on with the job and not be left waiting and wondering for months to come.

Mr. Ward: I have said that my right hon. Friend will be making a statement shortly. This is a matter which we have had to consider very carefully. They are very expensive aeroplanes, and we cannot afford to make a mistake.

Mr. Chetwynd: What is causing the delay? Why cannot a decision be made at this stage? Is it a fact that unless a decision to taken soon, we shall be well into the 1960s before we have any aircraft that is capable of long-distance freight carriage?

Mr. Ward: I have already said that the decision will be made soon.

Mr. Peyton: Mine is the third Question, No. 93, and I hope that it may remain on the Paper. I deferred it particularly because of the absence of my right hon. Friend the Minister of Defence.

Mr. de Freitas: Does the Minister recognise that this continued delay, besides having an effect upon the Fighting Services, is playing into the hands of the American aircraft manufacturers, who will have the aircraft ready at the time we want them?

Mr. Ward: We are bearing all these matters very much in mind.

Mr. Strachey: Is not the right hon. Gentleman aware that from the Army's point of view also, there is great urgency for this aircraft? It is not merely the question of the production of the aircraft It is badly needed for the Army.

Mr. Ward: This is one of the matters that we have had to consider carefully. We have been working closely with the War Office concerning it. It is no good having an aircraft that will not carry what the Army wants it to carry.

Aircraft Markings

Mr. de Freitas: asked the Secretary of State for Air (1) what principles are followed in deciding the markings to be painted on aircraft about to be used in military operations;
(2) what principles the Armed Forces follow at the time of military operations when marking their operational equipment so as to distinguish it from those of other forces.

Mr. Ward: I will, with permission, answer together this Question and Question No. 94 addressed to the Minister of Defence to which I have been asked to reply.
So far as aircraft are concerned, certain markings such as R.A.F. roundels are always carried. Additional markings for a particular operation must be readily distinguishable from both ground and air; must be easy to apply; must not be good aiming marks; and must be different from other signs used for ground-to-air recognition.

Mr. de Freitas: If these principles are followed, how was it that at the time of the Suez operation the R.A.F. adopted markings which were already in use by Israeli aircraft in that operation? Was it just a coincidence?

Mr. Ward: These were markings adopted by the Royal Air Force without reference to anyone. [HON. MEMBERS: "Oh."] There was nothing new about that. Special markings were also adopted for the Normandy landings on D-day.

Mr. Paget: How was it that these special markings for this operation happened to be adopted by the Israelis before our aircraft took off? Were the Israelis not informed what our markings would be?

Mr. Ward: Not by us.

T.S.R.2 Aircraft

Mr. Mason: asked the Secretary of State for Air what consideration has been given to the design of the T.S.R.2; and whether it is to be supersonic with a vertical take-off and landing technique.

Mr. Ward: A large variety of suggestions for the type of aircraft which can meet our requirement were put forward by the industry and carefully considered by the Air Ministry and the Ministry of Supply. The aircraft will be supersonic. It will not be capable of vertical take-off and landing; but it will operate from short runways with semi-prepared surfaces.

Mr. Mason: Why did the right hon. Gentleman's Department cast to one side so easily the N.A.39? Would not the modified version of the N.A.39 have produced an aircraft for the Royal Air

Force by 1961 and also have saved us between £30 and £40 million? Secondly, has the Air Ministry in mind the development of the T.S.R.2 as a supersonic manned bomber with short take-off run, as well as the encouragement of the development of the Swallow technique as a separate research aircraft?

Mr. Ward: In both these matters, it is important to have regard to the time scale. We wanted an aircraft which was more advanced and would do a slightly different task from the N.A.39 and we were prepared to wait for it. The Swallow, on the other hand, is an even further advanced design and that would have a much later time scale.

Mr. G. Brown: Can the right hon. Gentleman say, what he was unable to tell us last week, in what respects the T.S.R.2 will have an improved performance over the N.A.39?

Mr. Ward: There is, I believe, a later Question about that. The main features are a much shorter take-off and landing run and much better facilities for blind navigation over land.

Mr. Mason: Could not the modified version of the N.A.39 have precisely those two advantages? It could have been modified to take off in shorter distances, particularly as it is now being developed to take off from aircraft carriers. Secondly, would not it have most of the capabilities of the T.S.R.2?

Mr. Ward: A modified version of the N.A.39 would have had to be radically redesigned. It would have cost a great deal in research and development. We would not have got it any earlier, and it was, therefore, better to start again and have a brand new conception.

Mr. Mason: asked the Secretary of State for Air, in view of the decision in paragraph 61 of the 1957 Defence White Paper regarding the future of manned bombers, and particularly the suggested time lapse for one to be produced, when the development stage of the T.S.R.2 will be completed; and when he expects production to start.

Mr. Ward: Our intention is to have the aircraft in service in the mid 1960s. The development and production programme will be planned accordingly.

Mr. Mason: What precisely does the right hon. Gentleman mean by the "mid-1960s"? May I draw his attention to paragraph 61 of the 1957 Defence White Paper, which said:
Having regard to the high performance and potentialities of the Vulcan and Victor medium bombers and the likely progress of ballistic rockets and missile defence, the Government have decided not to go on with the development of a supersonic manned bomber, which could not be brought into service in much under ten years.
The T.S.R.2 is supersonic. It is manned. We have already wasted two years, from 1957 to 1959, for a decision and it will take at least seven years for this type of aircraft to be produced. We have, therefore, lost ten years. What is the object of this exercise?

Mr. Ward: That paragraph in the Defence White Paper referred to a strategic supersonic bomber under Operational Requirement No. 330. That was the aircraft that was cancelled. Ten years would have been about right for that particular aircraft, but that does not mean that every aircraft takes that time toy build. The hon. Member asked what I meant by "mid-1960". I cannot be specific, but it means about 1964 or 1965.

Mr. Mellish: Do we not have any aeroplanes at all?

Mr. Chetwynd: asked the Secretary of State for Air what period of time elapsed between the acceptance of the T.S.R.2 and its original introduction as O.R.339.

Mr. Ward: The decision to develop the T.S.R.2 was made just over a year after the general operational requirement was first released for study by industry.

Mr. Chetwynd: Do not this delay, and the fact that we are not likely to have this aircraft until 1965, show that there is a complete muddle between the Ministry of Defence, the Service Departments and the Ministry of Supply in bringing these plans to fruition?

Mr. Ward: It shows nothing of the sort. What it means is that first of all the industry had to be given an opportunity to study the requirements before it could tell us whether the aircraft that we needed was a practical proposition. Then we had to consider the matter in relation to the whole of our defence

policy. As the aircraft will remain in service until the 1970s, it is important that we should reach the right decision.

Sir A. V. Harvey: Will my right hon. Friend give an assurance, so far as he can, that now that the order has been placed, the Ministry of Supply will not interfere with the progress of this aeroplane or bring in modifications which will delay it further?

Mr. Ward: I have always found my right hon. Friend extremely helpful in this matter.

Mr. de Freitas: Will the right hon. Gentleman also ensure that the firm or firms get on with the job so that we do not have the delays that we have had in recent years?

Mr. G. Brown: asked the Secretary of State for Air by what means it is intended to give the T.S.R.2 the ability to operate from small fields.

Mr. Ward: By a combination of high engine power, advanced wing design and a special undercarriage.

Mr. Brown: Is the Minister satisfied that this will, in fact, produce the performance which he is talking about by 1964 or 1965, which was the time to which he committed himself in an earlier reply, and which is only five years away? Is he aware that he have had no aeroplane in modern times—with much less advanced technique than this—which has been produced, from the actual specification to flying service, in anything like that time?

Mr. Ward: I have every confidence in the assurances given by the industry.

Mr. Ross: asked the Secretary of State for Air to what extent the range of the T.S.R.2 is expected to exceed that of the latest Matador flying bomb.

Mr. Ward: The range of the T.S.R.2 will be substantially greater than the latest Matador derivative known as Mace.

Bacteriological Weapons

Mr. Emrys Hughes: asked the Secretary of State for Air to what extent Royal Air Force personnel are trained for the purpose of delivering bombs containing bacteriological weapons.

Mr. Frank Allaun: asked the Secretary of State for Air what training is being given for distribution by air of botulinus toxin and other bacteriological weapons.

Mr. Ward: No such training is given.

Mr. Hughes: Is the Minister aware that the Ministry of Supply has a research department for manufacturing substances for spraying over enemy crops in war time and that this factory has been visited by the Daily Express scientific correspondent, who reports this in his paper? Will the Minister give an assurance that the Royal Air Force will have nothing to do with this dirty business?

Mr. Ward: I can only repeat that we are not giving such training.

Mr. Allaun: Have discussions taken place at any time on this matter between the Ministries of Air and Supply? Secondly, in view of the widespread revulsion over this utterly inhuman business of germ warfare, whether used against human beings or enemy crops, will the Minister state that the Air Force will never undertake such an operation?

Mr. Ward: In reply to the first part of that supplementary question, my right hon. Friend the Minister of Supply dealt fully with this matter earlier in the week and said that the study was being made for purely defensive reasons. On the second point, subject to the proviso that they have reserved the right to retaliate in kind against any power which uses bateriological and chemical weapons, Her Majesty's Government are bound by the Geneva protocol of 1930 which forbids the use of such weapons.

Mr. Allaun: I asked the Minister whether any such discussions had taken place. Will he give an answer?

British Forces Network, Germany (Scripts)

Mr. Chetwynd: asked the Secretary of State for Air how many times in the last year he has asked for scripts of broadcasts on the Forces Network to be submitted to him; how many scripts were rejected; and how many were amended.

Mr. Ward: The British Forces Network in Germany is run by the Army, but scripts or recordings about R.A.F.

affairs are cleared with the R.A.F. Command headquarters. None from outside sources has been rejected in the last year. In the normal course of editing for transmission some have naturally been amended to shorten or lengthen the broadcast, to improve the wording, or even to remove obscene expressions.

Mr. Chetwynd: Does the Minister still take power to himself to censor scripts which might be controversial, as happened recently? In view of the fact that Lady Tedder was enabled to broadcast yesterday without her script being vetted by the Minister, will he drop this procedure now, as it is completely useless?

Mr. Ward: I made it perfectly clear that there were rather special reasons for my action then. As the hon. Member knows, Lady Tedder did broadcast last night.

Mr. Strachey: Will the Secretary of State take this opportunity to modify the statement he made the other day, that he or the Army authorities would allow no broadcasts on this network which were critical of or contrary to the policy of the Government or the Army Council or the Air Council? Surely, after seeing the scripts, critical broadcasts should be allowed so that these opinions may be heard?

Mr. Ward: As I have said, this Forces Network is run by the Army, and there is a Question down to my right hon. Friend the Secretary of State for War later this afternoon about the principles of censorship on this network.

Coastal Command

Mr. de Freitas: asked the Secretary of State for Air whether he is aware of the disquiet felt in the Royal Air Force at the present state of Coastal Command; and whether he will make a statement on its future.

Mr. Ward: Coastal Command, like other R.A.F. Commands, is smaller than it was, but its present state is one of high efficiency in regard to both equipment and training. The Command has demonstrated this with distinction in recent years not only in its primary maritime role but also in its transport and colonial policing activities.
I have every confidence that this high state of efficiency will be maintained in the future.

Mr. de Freitas: Will the Secretary of State comment on the allegation that the Air Council is treating this Command as a poor relation and is not giving it the resources which it needs, because it is about to be transferred to the Royal Navy?

Mr. Ward: We certainly have never treated it like a poor relation. I believe it is the best equipped maritime force in the world. As to the second pant of the supplementary question, I have seen certain speculation in the Press, but I am sure the hon. Gentleman would not wish me to comment on that.

Benson Experiment

Mr. Strachey: asked the Secretary of State for Air which changes introduced after the Benson experiment have been dropped without announcement.

Mr. Ward: I am aware of none and certainly we have no intention of dropping any. But most of the changes made as the result of the Benson experiment necessarily left discretion to commanders, and I would expect some adjustments to have been made locally. I have asked the Inspector-General to discuss the whole question with Commanders-in-Chief and to let me have a report including, if possible, suggestions for further improvements.

Mr. Strachey: Does the right hon. Gentleman realise that when a Report like the Grigg Report, which the Government have accepted, states that these improvements and reforms have been quietly dropped, it must cause a good deal of disquiet? Can he clear up the discrepancy between that categorical statement in the Grigg Report and what he tells us now?

Mr. Ward: As soon as I saw that statement I asked the Inspector-General to investigate it, but the right hon. Gentleman will appreciate that the Grigg Report did not give specific details.

Victor Bomber

Mr. Strachey: asked the Secretary of State for Air whether the trouble with the tail of the Victor bomber, reported

last August, has now been cleared up and all restrictions removed from the flying of this aircraft.

Mr. Ward: Yes, Sir.

Mr. Strachey: May we be assured that this very important weapon in our home defence forces is now satisfactory for the rÔle for which it was designed?

Mr. Ward: I can give that assurance.

Sir J. Duncan: While complimenting my right hon. Friend on the fact that the trouble with this aircraft has been cleared up, may I ask him whether he does agree that the trouble with the tail of the Labour Party is still chronic?

Helicopters (Army Requirement)

Mr. Strachey: asked the Secretary of State for Air if he has now considered the Army's requirements for a heavy helicopter; and if he will make a statement.

Mr. Ward: The B.192 is being produced to meet the Army's requirement for a heavy helicopter.

Mr. Strachey: Does that mean that the Army and the Air Ministry have decided against anything of the Rotodyne type and are going in entirely for the orthodox helicopter type of aircraft?

Mr. Ward: No Sir. It does not quite mean that. It means that we shall be getting the B.192 at the end of the year and the others, of course, come very much later.

Ground Officers Selection Centre, Uxbridge

Mr. Mellish: asked the Secretary of State for Air how many officers of the rank of squadron leader and above are on the staff of the Ground Officers Selection Centre at Uxbridge; what are their ages; and for how long they have held their existing ranks, acting, temporary or substantive.

Mr. Ward: As the Answer is in the form of a table of figures, I will, with permission, circulate it in the OFFICIAL REPORT.

Mr. Mellish: May we have an assurance that the officers at this centre, a very important place, are the very finest possible men for this job and that they have not been selected merely because they


are of an age when they could not get anything else to do?

Mr. Ward: I appreciate the spirit behind the hon. Gentleman's supplementary question. I am quite satisfied that

—
Branch
Age
Seniority


1 Group Captain
…
…
…
General Duties
47
January, 1954


3 Wing Commanders
…
…
…
General Duties
46
October, 1946






Secretarial
43
January, 1953






Secretarial
44
January, 1954


13 Squadron Leaders
…
…
…
General Duties
39
July, 1951






General Duties
38
July, 1956






General Duties
39
July, 1957






General Duties
44
July, 1954 (supernumerary)






Secretarial
46
July, 1948






Secretarial
38
January, 1956






Technical
46
January, 1954






Technical
44
July, 1954






Technical
44
July, 1954






Equipment
50
July, 1954






Education
44
July, 1951






Education
42
November, 1951






Education
37
February, 1955

Note.—In each instance the rank held is substantive.

Airmen (Raincoats)

Mr. Mellish: asked the Secretary of State for Air what progress is being made with the plan to issue raincoats to air men.

Mr. Ward: We hope to begin issuing raincoats to Regular airmen towards the end of March.

Mr. Mellish: Is not this symptomatic of the way in which the present Government do all these things? May I ask if the right hon. Gentleman is aware that the airmen are to have these raincoats after the winter is over—or is supposed to be over? May we have an assurance that some, at any rate, will be issued before March?

Mr. Ward: We have had to place an order for about 100,000 raincoats, and 100,000 take quite a lot of making. We are hoping to get delivery of the first 20,000 at the end of March. I am sorry that it has worked out at the wrong end of the winter.

Thor Missiles and Equipment (Deliveries)

Mr. G. Brown: asked the Secretary of State for Air how many delivery flights per month are being made by United States Globemasters bringing

these are the best officers we can possibly select.

Following are the officers of the rank of squadron leader or above serving at the Ground Officers Selection Centre:

Thor missiles and their support equipment to this country.

Mr. Ward: About forty, but the great majority of these flights do, of course, carry support equipment.

Mr. Brown: Is the right hon. Gentleman aware that although last week he denied that there were sixty of these missiles here, I have since been able to find a statement made as long ago as 21st November to the effect that there were to be sixty of these missiles here by the end of 1958 and that thirty Globe-master journeys per month were scheduled to bring the missiles and their supply equipment here? Does the right hon. Gentleman say that that information, as well as what I said last week, is wrong or does he know nothing about it at all?

Mr. Ward: I do not know where the right hon. Gentleman gets that statement which he said was made in November, Where does it come from?

Mr. Brown: The information that I am quoting is from an announcement made in the journal called the Aeroplane of 21st November, quoting United States statements—[Interruption.]Yes, but the Thors are coming from the United States. Last week the American general who


was in command of them was apparently wrong. Is the Minister aware that the reports upon which he has cast doubt are coming from the manufacturers, from Douglas? If neither the commander nor the manufacturers know what they are talking about and the Minister knows nothing about anything, what are we to believe?

Mr. Ward: Let us get this quite straight. The only fault lies in the fact that the right hon. Gentleman consistently misquotes what people say. What the American, General Schriever, said was that the first squadron of missiles would be on their pads in February, and that is correct.

Mr. Brown: Would the right hon. Gentleman tell me what is the misquotation here?—
United States reports state that 60 Thor I.R.B.M.s are to be delivered to Britain by the end of 1958. The missiles and their support equipment are being flown to Britain from Long Beach, California, in Douglas Globemasters. Thirty delivery flights a month are scheduled.
What is the misquotation there? If the right hon. Gentleman now says that there is not a misquotation, would he say what part of that statement is wrong?

Mr. Ward: The right hon. Gentleman asked for the facts and I have given him the facts. He can believe me or believe the Aeroplane, whichever he likes.

Mr. Brown: I have no doubt which I would believe.

Transport Command (Aircraft)

Mr. G. Brown: asked the Secretary of State for Air whether it is now the intention to retain Valetta and Hastings aircraft in Transport Command, in addition to the Beverleys, Britannias, Comets, and A.W.660's; and for how long.

Mr. Ward: As I explained last week, the A.W.660 is to be introduced to supplement the Beverleys and Hastings at present in service. Both the Beverley and the Hastings have still some years of useful life ahead of them. The Valetta has been withdrawn from service in Transport Command and Middle East Air Force, and is gradually being withdrawn from service elsewhere overseas.

Mr. Brown: Does not the Minister feel that the addition of yet one more aeroplane to this long list of those which

Transport Command has to handle must increase enormously the costs, the difficulties of maintenance and the dumps of supplies that have to be held all over the place? Does not he think that it would make the job of Transport Command much easier if he could bring in some degree of concentration?

Mr. Ward: Of course, the introduction of a new type of aircraft always gives rise to problems, but that does not mean that they cannot be overcome. They present no reason for getting rid of aircraft which are still useful and economical, nor are they a reason for not taking more advanced types of aircraft when we can.

Malcolm Clubs

Mr. Shinwell: asked the Secretary of State for Air whether he has now reconsidered Government policy in connection with Malcolm Clubs; and whether he will make a further statement.

Mr. Ross: asked the Secretary of State for Air if he will make a further statement about the future of the Malcolm Clubs.

Mr. Ward: In the course of the Adjournment Debate on 18th December, I said that if, in the near future, Malcolm Clubs paid their debt to the Air Ministry and showed that they had acquired adequate working capital, I would gladly consider the situation afresh.
We now understand that, given more time, Malcolm Clubs would hope to be able to raise funds to improve their financial position.
As stated in another place, the Government have therefore decided to take no steps towards the closing down of any of the clubs before the end of this year, in the hope that by then Malcolm Clubs will be able materially to improve their financial position.

Mr. Shinwell: Does not the right hon. Gentleman regard it as invidious that last Wednesday, in reply to a Question on this topic, he said that he could not alter his decision about the closing of the clubs—that is contained in the OFFICIAL REPORT—and yet, only a few hours afterwards, a Government spokesman in another place agreed to retain the clubs for another 12 months? Does that indicate any difference of opinion in the Government, and how does the right hon.
Gentleman feel about the action of his colleague in another place, in view of what he said last week?

Mr. Ward: It was during the course of the debate in another place that Lord Tedder said that if he had more time he would launch an appeal, and that he was hopeful of raising these funds. I had never been told that before. It was, therefore, only just that we should give them extra time.

Mr. Ross: When we consider the debate which we had in this House and what took place in another place, will not the Minister agree that all that information could have been gained in five minutes' conversation between the Air Minister and Lord Tedder himself? Does not he feel that he made the Air Ministry appear rather petty, heavy-handed, and obstinate in the way it has handled this matter, grateful as we are for the final decision?

Mr. Ward: Not in the least. It only goes to show that I am always open-minded and ready to change my mind if necessary. As regards the early part of the hon. Gentleman's supplementary question, as I pointed out in the Adjournment debate, we did wait for six months between taking a decision and announcing that we were going to do anything about it, because we wanted to allow as much time as possible.

Mr. Shinwell: Will the right hon. Gentleman say when he was informed that his colleague in another place was about to make a statement contrary to the one he had made some hours before? Would not it have been more courteous and reasonable on the part of the right hon. Gentleman to admit that he was mistaken about this matter?

Mr. Ward: I heard Lord Tedder's speech from the Steps of the Throne. It was I who asked my noble friend Lord Dundee to make that statement.

Thor Missile Sites (U.S. Technicians)

Mr. Ross: asked the Secretary of State for Air what difficulties have been encountered in the transport and housing of the several hundred United States technicians sent to Great Britain to work on Thor missile sites; and if he will make a statement.

Mr. Ward: The men concerned are employees of contractors responsible to the Douglas Aircraft Corporation which is in turn under contract to the United States Government. The job calls on them to move from place to place and most of them are living in caravans. I understand that difficulties over accommodation and transport have been temporary and certainly they have not delayed the work.

Civilian Employees, St. Mawgan

Mr. Paget: asked the Secretary of State for Air why three civilian transport drivers were suspended without pay at Royal Air Force, St. Mawgan, during the period preceding their being found not guilty of theft.

Mr. Ward: I regret that my inquiries into this matter are not yet completed. I will write to the hon. and learned Gentleman as soon as possible.
I can, however, say that the suspension was terminated after three days and full pay restored.

Mr. Paget: Is the right hon. Gentleman aware that the charges against these men were dismissed without the defence being called, and, where a man is under suspicion, is it the practice to suspend him without pay, as that seems to be a very objectionable practice which was adopted here?

Mr. Ward: The hon. and learned Gentleman will appreciate that this was a late notice Question, received only the day before yesterday, and I really have not had time to get the full facts. I should, therefore, be grateful if he would let me write to him about this case.

Oral Answers to Questions — ROADS

Schools (Waiting Restrictions)

Mr. Page: asked the Minister of Transport and Civil Aviation in respect of how many schools in the County of London he has received applications for the imposition of waiting restrictions out side the schools; and in how many cases such application has been granted.

The Joint Parliamentary Secretary to the Ministry of Transport and Civil Aviation (Mr. G. R. H. Nugent): We have received applications in respect of


twenty-eight schools in the County of London. Restrictions have been imposed in one case and will shortly be imposed in a second. Decisions have not yet been reached on the remaining twenty-six.

Slough By-pass

Mr. Brockway: asked the Minister of Transport and Civil Aviation what decision has been made regarding the point of junction of transport through Slough with the new by-pass.

Mr. Nugent: We have decided that the junction for Slough on the new by-pass should be at the Tuns Lane extension, as requested by the Borough Council.

Mr. Brockway: Is the hon. Gentleman aware that on this occasion we can congratulate the Minister on his decision?

Trunk Road Improvement Scheme, Newcastle-under-Lyme

Mr. Swingler: asked the Minister of Transport and Civil Aviation if he will state, in detail, the nature of the work which is yet to be done to prepare the trunk road improvement scheme from London Road to Milehouse Lane, Newcastle-under-Lyme.

Mr. Nugent: Orders affecting about thirty sideroads must be made before negotiations can be completed for purchasing the land necessary for the improvement scheme. The property required will include licensed premises, shops, dwelling-houses and a school and will involve problems of re-housing and relocation. Compulsory purchase orders may also be needed. Engineering plans and contract documents have to be prepared concurrently.

Mr. Swingler: All this is agreed. Will the Minister say how many years ago this by-pass was planned and why his Department has been so dilatory in authorising the preparations for it? Also, in view of the nearly 6 per cent, unemployment in Newcastle-under-Lyme now, is not it urgent that this work should go forward immediately?

Mr. Nugent: The work is going forward as fast as it can now. If the hon. Gentleman would like to have even greater details about the preparations needed, I shall be very happy to send them to him.

Traffic Lights

Mr. Page: asked the Minister of Transport and Civil Aviation whether he is aware of the substantial reduction in road accidents brought about as a result of control of vehicles' speeds by the introduction of a system of linked fixed-time traffic signals on a length of dangerous road at Slough; and whether he will encourage the adoption of such a system on other similar roads.

Mr. Nugent: While there has been a welcome reduction in accidents, there has also been appreciable delay to traffic on this important trunk road. Investigation of the position is continuing to see whether modifications to the system can be made which might retain the increased safety but with less delay, for example by cutting out some of the signals at the less busy junctions.

Mr. Page: Will my hon. Friend confirm that the delay has been only 55 seconds on this length of road, according to the Road Research Laboratory, and that serious accidents have been reduced to one quarter of what they were before and, in fact, none of those serious accidents affected pedestrians?

Mr. Nugent: That would not be a quite true picture of the reduction in accidents. I shall be happy to send the computation to my hon. Friend. The broad result of the work is that the Road Research Laboratory would like another year's observation here before it reaches any conclusions on it.

Mr. P. Noel-Baker: Will the Minister adopt the principle that the prevention of accidents is much more important than the saving of a very small amount of time in moving along the road?

Mr. Nugent: Unfortunately, they are related together only too often; as a result of delays, frustration arises in the minds of drivers, and that itself leads to accidents. We have to try to reach a balance in these matters, but I can assure the right hon. Gentleman that the prevention of accidents is always our concern.

Miss Burton: asked the Minister of Transport and Civil Aviation whether he is aware of the difficulty many people have in seeing when traffic lights change at some cross-roads where there is no "Cross-now" signal for pedestrians; and if he will install more of these.

Mr. Nugent: Unless there is a "Cross-now" signal, pedestrians should, when crossing at a light-controlled intersection, take into account the movement of the traffic as well as the indication of the lights. The installation of "Cross-now" phases involves a delay to traffic and is, therefore, for crossings where pedestrians experience special difficulties.

Miss Burton: Does the Parliamentary Secretary appreciate that that really is not good enough from the pedestrians' point of view? There are doubtless many examples, but is he not aware that, if one takes some of the roads running into Piccadilly Circus, or where Wigmore Street runs into Portman Square, it is quite impossible, on looking across, to see when the lights change, and accidents occur? Will he look at the matter again?

Mr. Nugent: The problem at each intersection has to be looked at on its merits. It is a matter of balance as to whether or not a "Cross-now" phase, a special pedestrian phase, should be introduced. If the hon. Lady will send me details of the particular crossings she would like me to consider, I should be very pleased to have them.

Miss Burton: I have given the Minister particulars of two. Will he look at those?

Toll Bridge and By-pass Road, Selby

Sir L. Ropner: asked the Minister of Transport and Civil Aviation (1) whether he has yet concluded his negotiations for the purchase of the toll rights of Selby Toll Bridge; and if he will make a statement about his plans to construct a new bridge;
(2) whether his Department still intends to proceed with the pre-war proposal to construct an east-west by-pass road at Selby; and when work on this project will be commenced.

Mr. Nugent: A scheme for rebuilding the existing toll bridge, which carries trunk roads A. 19 and A.63 over the River Ouse at Selby, was included in the road programme subject to the reaching of a satisfactory settlement of the toll question. It was at the same time envisaged that a by-pass would eventually be constructed.
Negotiations with the toll owners have shown that the probable cost of acquiring

the tolls would greatly exceed the amount we feel this scheme justifies. Accordingly, we are not prepared to proceed with it.
We intend to include the scheme for a by-pass, which is a long-term improvement, in its due place in the order of priorities in the road programme, but I am unable at present to say when that will be.

Sir L. Ropner: Does my hon. Friend recall that the right hon. Gentleman who is now Secretary of State for the Colonies gave a very specific undertaking that of all the existing toll bridges in the country Selby would be the first to be relieved of toll charges? Will he assure me that that pledge stands? Secondly, can he give no indication as to when work is likely to start on the by-pass?

Mr. Nugent: I am afraid that I cannot do more today than say that we now intend to include it in our road programme. I cannot give a date. As regards the pledge to which my hon. and gallant Friend refers, the answer is that we have given very careful consideration to the cost of buying out the toll and we feel that it would take too big a slice of our total Road Fund moneys to justify it.

Mr. Ernest Davies: Could the Parliamentary Secretary tell us how much it would cost? Are there no means of purchasing it, by compulsory purchase or otherwise? Why should it stand in the way of a road improvement?

Mr. Nugent: We have not reached precise figures, but the indication that we have of the probable cost is that the amount involved would be more than we consider this particular scheme would justify—[HON. MEMBERS: "How much?"]—as a total sum in our road programme.

Mr. Davies: How can the Minister know that the amount would be too much if he does not know what the amount is? Could he tell us what the amount is?

Mr. Nugent: I should like to see that question on the Order Paper, because I have not got a precise figure. We have made it our business to find out approximately what sum would be involved, and that sum, in our judgment, would take too big a slice of our total Road Fund moneys to justify it.

Mr. P. Noel-Baker: Can the Parliamentary Secretary tell us who the owner is and whether he is trying to exploit the public?

Mr. Nugent: No, I think not. It is a private company, I believe. We are satisfied that, in terms of the use, the kind of figure that we expect to be asked is about right.

Mr. Gower: Could my hon. Friend follow the procedure which was adopted in Cardiff, whereby the Penarth toll has been acquired by two local authorities, Glamorgan and Cardiff, those authorities recouping by levying a toll over two years and thereby repaying the capital cost? Cannot that be done by the Minister in this case?

Mr. Nugent: I am afraid that that would not solve this particular problem.

Mr. Popplewell: Will the Minister please have another look at this? The House does not feel satisfied that he is moving with anything like urgency. As the hon. and gallant Member for Barkston Ash (Sir L. Ropner) has reminded us, he has been pressing the question about tolls for many years, but matters are allowed to go on and we seem to make no progress. The by-pass is a pre-war venture which is still being talked about. There is an element of great urgency here, and I should like the Minister to give an undertaking that he will arrive at a decision very quickly in this case.

Mr. Nugent: The decision to build the by-pass is a valuable step forward, because, when it is built, it will to a considerable extent relieve the traffic now going over the toll bridge.

Mr. Woodburn: The Minister keeps referring to our Road Fund. Could he tell us how much money is in the Road Fund?

Rpair and Maintenance

Mr. Prentice: asked the Minister of Transport and Civil Aviation what steps he is taking to assist local authorities to spend more money on the repair and maintenance of existing roads.

The Minister of Transport and Civil Aviation (Mr. Harold Watkinson): I hope to be able to give greater help to highway authorities for this kind of work in the coming year.

Mr. Prentice: Will the Minister confirm that the total maintenance grants in the current year are less than they were last year? Has he seen the survey, in a booklet entitled "Stitch in Time" published by the British Road Federation, in which attention is directed to the serious situation resulting from lack of maintenance of the road network?

Mr. Watkinson: I do not disagree with what the hon. Member said about the current year and the past year. I said that I should be able to give greater help in the coming year.

Accidents

Mr. Hunter: asked the Minister of Transport and Civil Aviation how many people were killed and injured in road accidents in 1958, compared with 1957.

Mr. Nugent: Five thousand nine hundred and seventy persons were killed and 293,797 injured in road accidents in 1958 as compared with 5,550 killed and 268,308 injured in 1957.

Mr. Hunter: In view of the serious figures given by the Parliamentary Secretary, may I ask whether he will ask the Royal Society for the Prevention of Accidents to undertake special campaigns this year to bring to the notice of the public the great danger now on the roads?

Captain Pilkington: Can my hon. Friend say whether accidents have increased in proportion to the increase in the number of vehicles on the roads?

Mr. Nugent: No, they have not. The answer to the supplementary question of the hon. Member for Feltham (Mr. Hunter) is, yes. We have already discussed with the Royal Society its campaign for this year, and it is doing everything in its power to get over to the public the gravity of accidents and the necessity for all road users to show greater care when using the roads.

Mr. Strauss: Can the hon. Gentleman say how many hundreds of people have been, or are likely to be, killed as a result of postponing for three-and-a-half years the provisions of the vehicle road testing Clauses in the 1956 Act?

Mr. Nugent: I could not possibly estimate that figure, but, as the right hon. Gentleman knows, we are proceeding with that matter as fast as we can.

Pedestrian Crossings

Mr. Gower: asked the Minister of Transport and Civil Aviation in what circumstances zebra crossings are sited across by-passes carrying fast-moving traffic; and if he will make a statement.

Mr. Nugent: We are not, as a general rule, prepared to approve the installation of zebra crossings on roads carrying fast-moving traffic, where they may induce a dangerously false sense of security.

Mr. Gower: Is there not a good deal of evidence that some zebra crossings tend to defeat the objects for which the bypasses were first designed? Is not it a fact, as my hon. Friend has indicated, that the tendency of pedestrians to regard these crossings as absolutely safe is in itself a danger on such roads?

Mr. Nugent: We do not normally site zebra crossings on unrestricted roads.

Mr. Gower: asked the Minister of Transport and Civil Aviation if he will take steps to ensure, in all cases, specially bright illumination at zebra crossings.

Mr. Watkinson: As a road safety measure, my Department is considering means of providing better illumination of pedestrians about to step on to crossings in poorly lit streets.

Mr. Gower: While thanking my right hon. Friend for that Answer, may I ask whether he will pay particular attention to the great differences which occur in different parts of the country both in the quality and quantity of the lighting?

Mr. Watkinson: Yes, certainly.

Mr. Isaacs: May I ask the Minister whether, in giving consideration to the question of better lighting on crossings, attention will be given to keeping clear the lower half of the amber bowl so that the light will go down on the crossing at the foot of the post?

Mr. Watkinson: What we are trying to do is to fit a small auxiliary light at the foot of the beacon so that it shines on the crossing, but that is only in the experimental stage.

Programme

Mr. Partridge: asked the Minister of Transport and Civil Aviation if he will make a statement on the progress and future of the road programme.

Mr. Watkinson: I do not intend to depart from my general policy of not announcing lists of schemes far in advance, but measured in terms of expenditure I can say that as compared with an average expenditure on major improvements and new construction over the past four years of £12·3 million, our expenditure this year is likely to be well over £40 million. The approved capital investment programme for next year includes expenditure of over £50 million, and for the year thereafter of over £60 million. It is the intention that thereafter the programme should be planned on a basis of not less than £60 million per annum.

Mr. Partridge: May I ask my right hon. Friend whether he is aware that all right-minded people are proud of the zeal and enthusiasm with which he is tackling this problem, notwithstanding all that has happened in the recent past?

Mr. Watkinson: I think that the answer is that no one who knows anything about road building deludes himself that we shall be able to build a large number of roads without having any difficulties. I have indicated in my Answer that the Government intend to press on with the programme, despite difficulties.

Mr. Ernest Davies: Can the Minister tell us to what extent there is to be an increase in work to be done? Does he consider it fair to take an average over the last four years in view of the fact that the programme has been accelerated over the last four years? It would be of interest to the House to know to what extent more money is to be spent and more work done over the next few years.

Mr. Watkinson: It the hon. Gentleman studies the Answer, I think he will see that it says that clearly that will happen.

Oral Answers to Questions — CIVIL AVIATION

Jet Aircraft, London Airport

Mr. Brockway: asked the Minister of Transport and Civil Aviation if he is satisfied that the procedure for the ascent and descent of jet aeroplanes from and to London Airport safeguard nearby residents from undue noise and vibration: and if he will make a statement.

The Joint Parliamentary Secretary to the Ministry of Transport and Civil Aviation (Mr. John Hay): The procedures described to the House by my right hon. Friend on 5th November, were designed to achieve the aim set out in the Question. We are watching the situation carefully, in collaboration with the air lines concerned, but reports on operations so far indicate that more experience is required before the effectiveness of these procedures can be fairly judged.

Mr. Brockway: Is the hon. Gentleman aware that it was hoped that residents in the nearby areas would become conditioned to the noise and vibration, but that only this last week, from Colnbrook and Langley, over which places these planes immediately rise, I have had letters saying that children are still terrified and that adults and old people are left in nervous prostration for some minutes after the aeroplanes have passed? Is he aware that unless he makes some change, he will have to declare a curfew during the period of the planes passing, and would not that be intolerable?

Mr. Hay: I hesitate to comment on the latter part of the hon. Gentleman's supplementary question, but we realise that there is an awful problem here. I feel that we need a little more time in which to judge the effectiveness of the procedures which have already been put into operation.

Mr. Beswick: Is the hon. Gentleman aware that I have had no answer to a letter sent to his Department some little time ago, in which it was stated that aircraft taking off to the west, jet and others, deviated to starboard, and that this brings them directly over Longford village, causing increased annoyance to residents in that village? Is that the case, and is it necessary?

Mr. Hay: I should have to have notice of that point, but I think I recollect signing a letter to the hon. Gentleman yesterday.

Civil Airports

Mr. Rankin: asked the Minister of Transport and Civil Aviation what civil airports in the United Kingdom were closed, and for how many days in each case, since 1st November, 1958, to the nearest convenient date.

Mr. Hay: I will, with permission, circulate information in the OFFICIAL REPORT about civil airports where weather conditions prevented operations for a period of 24 hours or more during the period 1st November, 1958. to 20th January, 1959.

Mr. Rankin: Would the hon. Gentleman agree that during this winter the closures have been exceptional, owing to fog? Can he say whether any estimate has been formed of the losses which have befallen operating corporations as a result of fog disruption? May I also ask whether we have given up hope of achieving an effective method of fog dispersal?

Mr. Hay: I think that all hon. Members who have travelled by air know how annoying fog delays can be. Without notice, I have not any estimate of the cost to the corporations or independent operators.

Mr. Rankin: Can the hon. Gentleman get an estimate?

Mr. Hay: If the hon. Member cares to table a Question, I will look into the matter. In answer to the last part of the hon. Gentleman's supplementary question, my hon. Friend the Member for Wembley, South (Mr. Russell) has tabled a Question about F.I.D.O., the Answer to which will, I think, clear up the hon. Member's doubts.

following is the information:

Airport

Number of days


Belfast
…
2


Birmingham
…
2


Bristol
…
9


Cardiff
…
3


Exeter
…
3


Leeds and Bradford
…
4


Liverpool
…
3


Lydd
…
2


Manchester
…
3


Renfrew
…
2

There were, of course, a number of other occasions when operations ceased for part of a day.

Oral Answers to Questions — TRANSPORT

London Travel Committee

Mr. Ernest Davies: asked the Minister of Transport and Civil Aviation how many meetings have been held by the London Travel Committee since its appointment; and what progress reports he has received from it.

Mr. Watkinson: The Committee has held two meetings. It has not yet made any formal reports, but the chairman has informed me that the Committee has made an assessment of the problem and is setting up four working groups to deal, respectively, with staggered working hours, road congestion, building development as affecting travel, and the feasibility of further railway construction.

Mr. Davies: We are grateful for the progress which has been made, but is the Minister fully satisfied that this large Committee of a very mixed bag of persons, both professional and amateur, is the best body to tackle this problem urgently? Would not it be better if he appointed small groups of engineers, including traffic engineers, to discuss the problems and work out improvements to solve them, especially in view of the great and tragic increase in accidents last month in London, which constituted a record?

Mr. Watkinson: I do not think so, for two reasons. One is that the Committee is rightly dividing itself up to deal with the enormous scope of the subject. As I think the hon. Gentleman agrees, one has to think of railways, roads and a great many other things. As to the technical side of it, of course, the Committee has the full resources of my Ministry at its call at any time.

Driving Tests

Mr. Hamilton: asked the Minister of Transport and Civil Aviation if he will outline the principles which govern the granting of priority to certain people in taking the driving test.

Mr. Watkinson: There is no general system of priorities. Each candidate is given the earliest available appointment on the days of the week he says he prefers. Where, however, vacancies arise through cancellations, priority is given to candidates whose tests have had to be postponed, and to those who have made a request for an early test.

Mr. Hamilton: Has the Minister seen the report in Reynolds News of 18th January—[HON. MEMBERS: "Oh."]

Mrs. Slater: A very good newspaper.

Mr. Hamilton: Yes—stating that a certain individual in Kettering was given priority? Will he give an undertaking that this kind of thing will cease? Also, can he explain why the Government should pander to individuals like Terry Dene and Prince William?

Mr. Watkinson: I am not a regular reader of Reynolds News, I am afraid, but to deal with the hon. Gentleman's supplementary question, I have only recently been considering the whole scope of driving tests. A great number of hon. Members are interested in them at the moment. I am quite satisfied that absolute fairness is shown to every applicant.

Sir W. Anstruther-Gray: asked the Minister of Transport and Civil Aviation if he will now state the result of the steps he has taken to reduce delay before applicants for driving tests are allotted a date for testing.

Mr. Nugent: The staff of examiners has been increased by 48 and a further 21 are expected to take up duty shortly. We have also made arrangements to recruit 200 more examiners in the coming months. Meantime, despite recent loss of testing time through winter weather, the number of candidates waiting for tests has been reduced.

Sir W. Anstruther-Gray: How long does my hon. Friend estimate that the delay will be in future before a test is granted to an applicant?

Mr. Nugent: Our intention is to reduce the waiting period progressively in the coming months, until we can bring it down to an average of three or four weeks.

Oral Answers to Questions — SHIPPING

Laid-Up Tonnage

Mr. Peyton: asked the Minister of Transport and Civil Aviation the total amount of United Kingdom gross registered tonnage now laid up.

Mr. Hay: On 31st December, 1958, 1,046,800 gross tons were laid up for reasons other than repair.

Mr. Peyton: Will my hon. Friend bring this figure to the attention of his right hon. Friend the Chancellor of the Exchequer and perhaps suggest to him that there could never be a more opportune time, because it would be cheaper,


from his point of view, to relieve this industry of the drastic tax burden which it has to bear?

Mr. Hay: My hon. Friend will realise that I would hesitate to answer for the Chancellor of the Exchequer, but I am quite confident that my right hon. Friend is fully aware of the difficulties of the shipping industry.

Oral Answers to Questions — RAILWAYS

Underground (Service Changes)

Mr. Ernest Davies: asked the Minister of Transport and Civil Aviation if he will request the London Transport Users' Consultative Committee to inquire into the reasons for the changes in scheduled services on London Transport which led to recent refusals of passengers to leave certain Underground trains.

Mr. Cooper: asked the Minister of Transport and Civil Aviation what discussions he proposes to have with the London Transport Users' Consultative Committee following recent sit-in strikes on certain London Underground trains.

Mr. Watkinson: I would refer the hon. Member and my hon. Friend to the Answer which I gave the hon. Member for Dagenham (Mr. Parker) on 21st January. There is nothing more I can say at this stage.

Mr. Davies: I have seen that Answer, which indicates that London Transport has been asked to keep the Minister informed of the position. Does the Minister really think that most passengers, when de-trained through uncoupling, are satisfied to know that he is looking into the matter? Does not he think that this independent committee which the consultative machinery provides would be more suitable to inquire into the grievances of London passengers to see whether they are justified, especially in view of the inconvenience caused to other people when some passengers take direct action on their own part?

Mr. Watkinson: Let me make the position clear. London Transport has said plainly that is recognises its responsibilities in this matter, and it is trying to put matters right. I think that it is only fair to give London Transport a chance to do that, but I am watching

the position in the interests of the travelling public—that is one of my duties—and I shall see how things work out. We must, however, give London Transport the chance to put things right on its own account. If it cannot, I do not rule out other possibilities.

Road Bridges and Level Crossings (Maintenance)

Mr. Strauss: asked the Minister of Transport and Civil Aviation whether the Government have now decided how they will implement the undertaking given in May last year, during the negotiations with the British Transport Commission over the increase in railwaymen's wages, that the Commission would be relieved of the obligation to maintain road bridges over the railways and level crossings.

Mr. Watkinson: This has proved a difficult and complicated problem, but I hope to announce the Government's decision very soon.

Mr. Strauss: That is exactly the same Answer as the Minister gave me nearly three months ago, in November. Is there any chance of getting a decision in this matter within the next few weeks?

Mr. Watkinson: Yes, I think there is. I do not think that the Commission will lose very much by the delays.

PRESTON BY-PASS (CLOSURE)

Mr. T. Brown: Mr. Speaker seeing that Question Time has elapsed, I desire to ask your guidance on a matter of vital—

Mr. W. R. Williams: On a point of order, Mr. Speaker. I thought that as you were looking in my direction for a supplementary question, Question Time was not quite over.

Mr. Speaker: I looked in the hon. Member's direction, but I directed my voice to the hon. Member for Ince (Mr. Brown).

Mr. Brown: I want to ask a very important question about a matter that is causing grave concern in the County of Lancaster, and about which there are Questions on the Order Paper. Is the Minister of Transport prepared to make a statement about the collapse of the Preston by-pass?

Mr. Speaker: But for the hon. Member's intervention, I would, by now, have called on the right hon. Gentleman to answer Question No. 54, and other Questions that deal with this matter.

The following Questions stood upon the Order Paper:

Mr. C. HOWELL: To ask the Minister of Transport and Civil Aviation what damage has been done to the new Preston by-pass during the recent bad weather; what will be the cost of repairs: and if he will make a statement.

Mr. ERNEST DAVIESa,: TO ask the Minister of Transport and Civil Aviation when it is anticipated the Preston by-pass will be reopened; and if he will institute an inquiry into the cause of the deterioration in the motorway which required its closure so soon after its opening.

Mr. GRIMOND: To ask the Minister of Transport and Civil Aviation if he will make a statement on the closing of M6, the Preston by-pass; how long it is likely to be closed; and how much the repairs are estimated to cost.

MRS. CASTLEa: To ask the Minister of Transport and Civil Aviation if he will make a statement on the result of his investigation into the closing of the Preston motorway.

Mr. E. JOHNSON: TO ask the Minister of Transport and Civil Aviation if he has considered the report made to him on the damage caused by frost to the Preston by-pass; and if he will make a statement.

Mr. G. R. STRAUSS: TO ask the Minister of Transport and Civil Aviation whether he has yet received the report on the broken surface patches that have developed on the Preston motorway; and if he will make a statement.

Mr. PEYTON: TO ask the Minister of Transport and Civil Aviation if he will make a statement on the causes and extent of the damage to the Preston motorway.

Mr. T. BROWN: To ask the Minister of Transport and Civil Aviation why the Preston by-pass road, which cost the nation approximately £4,000,000, collapsed within 47 days of its coming into use; whether he is satisfied that the specifications were carried out strictly; and

if he will make a statement as soon as possible.

The Minister of Transport and Civil Aviation (Mr. Harold Watkinson): With permission, Sir, I will now answer Question Nos. 54, 57, 58, 62, 65, 68, 76 and 81 together.
The construction of the Preston bypass was carried out by the Lancashire County Council, acting as the Ministry's agent, to a design which was approved by my engineers. On 20th January frost damage was found to have affected about 1 per cent, of the carriageway surface. Closure would not normally have taken place, but, taking account of the height of the embankments and the high speeds permissible on this motorway, the road was temporarily closed on the advice of the Lancashire County Police.
I immediately instructed the technical and administrative officers concerned in the Department to review the position and I have also seen the agent authority I am circulating in the OFFICIAL REPORT a note summarising the advice that I have received.
The immediate cause of the trouble is an excess moisture content under portions of the road's surface. Possible causes and methods of dealing with this situation are set out in the note referred to.
The type of construction employed has been used with complete success on many occasions elsewhere. The rate of construction and completion dates for the road were a matter for the agent authority, but I want to make it quite plain that I fully support it in the course which it pursued.
Any lessons to be learnt from this experience are being studied urgently. Repairs are being carried out as quickly as possible, but the date when the road can be reopened to traffic depends entirely on weather conditions from now on.

Mr. Brown: I have two questions to ask, Sir. First, is it true that in November and December, 1957, a report was sent to the right hon. Gentleman's Department complaining about the mixing of the aggregate for the lower stratum of ballast put into the roadway? Secondly, what truth is there in the statement that appeared in the Press on 23rd January to the effect that officials at Whitehall—I believe in the Minister's


Department—issued instructions to the Lancashire County Council—and I have a copy of them here—to adopt a policy of "hush-hush" and "do not give any information to the people who are making inquiries"?

Mr. Watkinson: I am sorry that the hon. Gentleman was foiled before.
No discussions took place with the Department on the aggregate, shale or anything else used in the road—in the sense of it being wrong or imperfect. Naturally, discussions took place in 1954 and 1955, when the road was first projected. I want to make it quite plain that as far as my present researches have gone—and they have been very extensive—I see no reason to impute any blame to anybody at all. I think that both the county council and the contractors did their best in very difficult weather conditions.
As to the second part of the hon. Gentleman's question, I do not know what document it is that he refers to, but no instructions have been issued by the Ministry to the county council at all

Mr. Johnson: Is it not the fact that this type of frost damage that has occurred on the Preston by-pass is something commonly experienced on motor roads in Germany in every single year?

Mr. Watkinson: That is so. Both the autobahnen and the Alaska Highway, to give two examples, have been extensively damaged by frost. In fairness to the county council, which is the agent in this matter—and which, incidentally, should have an interest to hon. Members opposite, perhaps, more than to me—I should say that this is an extremely minor piece of damage. Similar damage has occurred on other roads during these recent keen frosts and, rather naturally, no notice whatever taken of it.

Mr. Strauss: Is the Minister aware that the House and the country have been profoundly shocked by this occurrence? It may well be that no one is specifically to blame, but in view of the recent opening of the road, with all its surrounding circumstances, it really is essential that there should be a proper, independent inquiry as to the cause of this trouble, because it may be that the technicians of the Department, or the

county council, or the other people involved who are reporting to him were themselves responsible.
Therefore, will the right hon. Gentleman set up an independent inquiry to find out who, if anyone, was responsible for this? Can the right hon. Gentleman also tell us the approximate cost of repairing the failure? Thirdly, can we have an assurance that similar difficulties will not arise in the building of the London-Birmingham motorway?

Mr. Watkinson: As to the general tenor of the right hon. Gentleman's question, he had better read the report that I shall circulate. It is quite factual, and certainly does not call for any form of public inquiry. The London-Birmingham motorway is, in any case, being constructed to quite a different specification, but with every motorway—and I wish to make this quite plain—or any other road, if the work is to be pushed forward, as it is the country's wish that it should be, in difficult conditions, some problems are bound to arise. All I say is that because the Lancashire County Council pushed forward with the work I entirely support what it did. If it ran some slight risks, I think that it was fully justified in doing so.

Mr. Strauss: It has been alleged in the Press, and statements have been made by the contractors and other people—I do not know with what truth—that this trouble would not have arisen had it not been for the fact that the work was pushed on unduly, employing systems that were slighly cheaper—false economy. Further, can the Minister say whether the report was, in fact, drawn up by the people who were responsible for the making of the road?

Mr. Watkinson: I am very glad that the right hon. Gentleman raised his first point, because I think it is very important. It is most important to make it clear that at all times all the relevant dates—the five months' extension of the completion date—were decided freely by the Lancashire County Council in its own right, as agent, and without consultation with the Ministry. All I say is that I fully support the county council, because I think that it was right to press on, despite the difficulties.
As to the second point, whether cheap forms of construction were used, the


Ministry was deeply concerned in discussing the method of construction fully with Lancashire County Council, as I have said, as far back as 1954, because this road needs an embankment 60 ft. high in places, and there must be some contingent risk of settlement. So a flexible form of construction was agreed by all the parties concerned to be the right one.
I think that the last point the right hon. Gentleman made was about the people who have reported. Well, I have seen everybody who is concerned with the road, a very large number of people. As I say, the report I am circulating is purely factual. In my view, it sets out the position quite clearly, and it does not in any sense call for any form of public inquiry.

Mr. Peyton: Does my right hon. Friend realise that a great many people will feel great sympathy with him in what is undoubtedly a big personal disappointment? Does he also realise that the fuller and franker the disclosure made of any facts now revealed by his subsequent inquiry the more confidence will be restored?

Mr. Watkinson: I can admit to disappointment, but not to dismay, because, as I said, I do think that if we are to have a road programme which is pressed on in the kind of climate we have in Britain we must not be dismayed if, occasionally, we meet difficulties. Indeed, they must be a challenge to press on.

Mr. Grimond: However often we hear the Government's view that frost is something un-British, and that it should not matter if the country has to suffer from the results of frost, may I ask whether this inquiry will investigate the general principles of road building, because in all parts of the country we suffer a great deal of damage annually from frost on the roads? Will it, for instance, take into account that we should be justified in spending extra money on roads of concrete, apart from the particular problem of this by-pass?

Mr. Watkinson: I think that the hon. Gentleman had better read the report, which sets out all these facts quite factually. It shows quite clearly, as I said before, that no blame rests on those who

built this road, except, as I say, that they pressed forward in extreme difficulties, perhaps taking a slight risk. In that, as I have said, they have my full support.

Mrs. Castle: Is the right hon. Gentleman aware that in the Blackburn Evening Telegraph of 23rd January the chairman of Lancashire County Council went publicly on record to the effect that the county surveyor, Mr. Drake, told the Ministry that, because of the nature of the soil and the settlement that was bound to take place, rather more drainage should be put in on the motorway than was usual and that the Ministry did not see that point? It says that the county surveyor emphasised that the Ministry was taking an undue risk. In view of this very serious allegation, and other suggestions that there has been political pressure by the Minister to speed ahead unwisely, ought there not to be an independent inquiry so that we can see that the mistakes are not repeated elsewhere?

Mr. Watkinson: I understand that the chairman of Lancashire County Council was reported in later editions of the newspapers as saying that he was not correctly reported in that statement. However, be that as it may, I have seen him this morning, and Mr. Drake, the chief engineer, and I am quite satisfied that no discussions took place with the Ministry specifically about extra drainage since 1954 when the general question of drainage was discussed between the Ministry and Lancashire; and that was a year and a half before the road itself was even authorised.
As to the second point, the date fixed by Lancashire for completion of this road was November. The opening ceremony took place in December. Therefore, there was certainly no pressure on Lancashire.

Mr. Ernest Davies: The Minister keeps saying that no consultations took place with his Ministry. Is it not a fact that, first, he stated that Lancashire County Council acts as agent to the Ministry, and, secondly, that there are Ministry representatives who supervise construction of the road and that there is constant contact between the Ministry officials on the spot and the Lancashire County Council? Surely there must have been some miscalculation somewhere. New drains are now being put in, we understand. It is


quite clear that there has been miscalculation on the specifications in this case. That being so, are not my right hon. and hon. Friends justified in pressing for an independent inquiry?

Mr. Watkinson: I do not think the hon. Gentleman has quite studied the proper relationships, which are set out in the Trunk Roads Act. Under that Act the local authority selected by the Ministry as agent becomes the operating authority for the road and is fully empowered to take all decisions about all matters, once specifications are settled and contract terms are agreed. Of course, the Ministry's local divisional road engineer keeps an eye on the job and helps wherever he can, but he has, perhaps, several counties to look after, and he is in no sense the agent for building the road.
As to the general issue, hon. Members had better study the extremely factual report, which has been seen by all concerned, and is a factual record of the position. If they will judge it impartially they will see that what I have said about it is absolutely correct, that no blame imputes to anybody, except, perhaps, to the weather—[HON. MEMBERS: "Oh."]—and that no public inquiry is justified.

Several Hon. Members: rose—

Mr. Speaker: Order. Hon. Members ought to look at the answer which is to be circulated.

Sir A. V. Harvey: On a point of order. The hon. Member for Ince (Mr. T. Brown), in the process of asking his supplementary question, referred to a document. In fairness to hon. Members on this side of the House, ought not that document to be laid on the Table so that we can see what it contains?

Mr. Speaker: No mention was made, I think, of a State document of any sort.

Sir A. V. Harvey: An official document.

Following is the note:

1. Origin of the project
In June, 1955, the Lancashire County Council was invited to act as my agent for the design and preparation of contract details for the Preston By-pass.

In May, 1956, the County Council was authorised to enter into the contract for the construction of the work. Construction on the site started on 12th June, 1956, and the road was opened to traffic on 5th December, 1958.

2. Administrative and contractual arrangements
The Lancashire County Council, as the Minister's agent authority under Section 6(1) of the Trunk Roads Act 1936, were asked to be responsible for the construction of the Preston By-pass. As agent authority they were responsible for the design of the road and for letting the contract. The Lancashire County Surveyor was the engineer under the contract and through his representatives on the site he had the duty of watching and supervising the construction of the works on behalf of the Lancashire County Council, who are the principals in the contract. The design and the specification of the scheme were approved by the Minister's engineers.

3. Carriage way design
The carriageway design is in accordance with the Department's general standard specification which includes clauses for flexible types of construction as well as for rigid, i.e. concrete, construction.
It was clear from preliminary site investigation that soil conditions would be poor and care would be needed in preparing foundations. Bearing this in mind and with the high embankments required in places the County Surveyor's proposal for flexible construction was agreed. This particular form of flexible construction has been used in Lancashire since 1952 without reports of failure.
The design adopted comprised a thin layer of ashes on the formation and on this a sub-base of compacted colliery shale of varying thickness dependent on the quality of the ground. The base consisted of pre-mixed water-bound macadam 9 inches thick and the surface construction was 2½ inches of tarmacadam with a temporary running surface of cold asphalt ¾ inch thick. The laying of this temporary surface was in accordance with past practice in view of the usual risk of settlement of embankment work. Flush marginal strips in concrete 12 inches wide by 12 inches deep were laid along each edge of carriageway to give support to the layers of the carriageway construction and to define the sides of the road.

4. Subsequent developments
As stated above, the road was completed and opened to traffic on 5th December, 1958. Severe frosts occurred early in January when temperatures as low as 27 degrees of frost were recorded. The average temperature for the first three weeks of the month was, in fact, the lowest for 47 years. Following an exceptionally rapid thaw on the night of 17th-18th January defects were observed on the 20th January on some areas of carriageway. The County Police considered conditions were dangerous for high speed traffic and it was decided, on their advice, to close the motorway on the morning of 21st January. Investigations showed that there were about 15 areas of varying size where some deformation and crazing of the surface had occurred.


In a few other places there had been local disintegration in small patches. The total area affected at present is about 3,000 square yards in a total area of motorway carriageway of about 280,000 square yards.

5. Result of investigation to date
Several trial holes have been opened up in the damaged portions and excess moisture has been found lying in the tarmacadam base course, in the waterbound macadam and in the top of the shale from which it was seeping slowly at the edges of the carriageway. There has also been seepage from the ash layer overlaying the clay formation but it is not clear whether this is associated with the condition of the upper layers.
From the preliminary investigation it appears that most of the excess moisture in the ash layer has been held in from the construction period and that the excess moisture in the upper layers was probably partly trapped during construction though some may have entered through the surface.
It seems likely from a first examination, which has been hampered by further conditions of frost, that the surface defects which have occurred were due to the presence of this excess moisture in the base courses which also showed at the top of the shale. Final conclusions cannot be drawn until there has been a period of continuous thaw.

6. Remedial measures
The first and most urgent task is to drain the places where there is excess moisture and this will be done by a system of longitudinal rubble drains along most of the length of each edge of each carriageway, connected to the existing drainage system. Provision will be made for draining the upper courses in places by cutting slots in the concrete marginal strips. This will be followed by the reinstatement of the base and surfacing where it has failed.

Orders of the Day — EUROPEAN MONETARY AGREEMENT BILL

Order for Second Reading read.

3.46 p.m.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): I beg to move. That the Bill be now read a Second time.
In this Bill the Government are seeking powers to enable the United Kingdom to play their part in carrying out the European Monetary Agreement. This Agreement, as right hon. and hon. Gentlemen know, came into operation as a result of certain steps in the exchange field which a number of European countries, including ourselves, decided to take at the end of December.
I understand that it is the wish of the House to have a general debate, of course within the rules of order as they relate to the passing of legislation, about this move in the exchange field which we have recently made in relation to sterling. This is a proper matter for discussion. It is also one which, I am sure, we should all be sorry to see unduly entangled in party politics. I shall, therefore, try to expound this matter, and to deal with the criticisms as they have appeared, in no spirit of controversy.
On some aspects there is, of course, plenty of room for different views. Even the experts do not agree about all of them. The subject that we are to discuss today is in some ways a rather complicated, technical one, and I hope that the House will treat me during the next half hour or so with as much patience as it can muster.
The step which we have taken, as the House knows, has been to abolish the distinction between American accounts and transferable accounts. Both have now become a single external account, the sterling of which is now freely transferable between non-residents. The position of security sterling, that is to say, sterling arising from the purchase and sale of sterling securities, remains unchanged by this move.
This move is, of course—and this is the first thing that I really want to emphasise—a perfectly logical step in the continuing development of the United Kingdom's external economic policy since the


war, as agreed by all parties. I am sure that there will be no dispute that the aim of all parties since the war has been to secure the greatest possible freedom of trade and payments; and the two, of course, must go together. Payments are the means of settling for trade, and our policy on payments is based on our broad commercial interests.
May I give one or two quotations from official sources? An objective of the Bretton Woods Conference, whose recommendations were accepted, of course, by all member Governments, was that Governments should, in the words of the final Act,
reach agreement as soon as possible on ways and means whereby they may best reduce obstacles to international trade and in other ways promote mutually advantageous international commercial relations.
And the Preamble to the General Agreement on Tariffs and Trade recognises the desires of the contracting parties to enter
into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce.
Those objectives, therefore, have been the aim of all Governments in this country since the war.
For example, the Bretton Woods legislation was enacted by right hon. Gentlemen opposite, and the G.A.T.T. was entered into by them. I do not quarrel with those decisions, but they show the extent to which all parties share the views to which I have just referred.
There is one more example, in the letter to the Secretary of the United States Treasury, sent on 20th August, 1947, and subsequently laid before the House, by the right hon. Member for Bishop Auckland (Mr. Dalton), then Chancellor of the Exchequer. After referring to the action—that is, the suspension of convertibility—which had been taken as being of an emergency and temporary nature, the right hon. Gentleman went on to say:
The restrictions now contemplated should not be interpreted as in any degree indicating a modification of Her Majesty's Government's oft expressed view as to the desirability of maintaining full and free convertibility of sterling. As a long-run objective such convertibility is an indispensable aim in British financial policy. The steps presently being taken"—

that is, then—
are to be regarded as purely emergency in character.
Therefore, on all this there should be no disagreement. There is, of course, room for argument about the means of attaining the objective and the timing of the steps towards it, but none between the parties as to the objective itself.
It might be perhaps worth the while of the House to consider briefly why all Governments since the war should have had these objectives. It is surely simply because this country more than almost any other depends upon international trade to maintain and increase its standard of living. Our economic boundaries extend far beyond our geographic boundaries. I need not amplify the reasons for that being so. They are very well known to all hon. Gentlemen. But it means that in Britain we simply cannot have a closed economy even if we wanted it. Therefore, to a country in the position of ours the minimum of restrictions on trade must be a predominant interest.
This is so that we can get our exports out into the world to earn the means of paying for our necessary imports. But if we want to see a world with the minimum impediments to trade then we must ourselves impose the minimum impediments to other people's trade. That is why Governments of both parties have entered into international obligations which severely limit the right to restrict trade. I refer, of course, to the G.A.T.T. again here; and that is why we have taken vigorous steps readily to reduce our restrictions. But it is no good removing the quotas and other restrictions if we do not have an acceptable and freely usable means of settling commercial transactions. With the maximum freedom of trade must go the maximum freedom of payments if we are to achieve our aim.
If I may, I should like to quote once more, and this will be the last but one of my quotations. This time it is from Lord Keynes who, speaking for the Coalition Government, in 1944, said:
…we can look forward to trading in a world of national currencies which are interconvertible. For a great commercial nation like ourselves this is indispensable for full prosperity.
Sterling is the currency most widely used in international trade. That is a fundamentally important fact, it seems to me.


If sterling ceased to be a desirable store of value, as the economists say, and an acceptable means of payment, trade would be bound to suffer. It is, therefore, in the interests not only of the United Kingdom, but also of most other countries, that sterling should be even more convenient and even more usable than it has been recently.
At Bretton Woods the first positive steps were taken to reduce the risks of alternating booms and slumps by international co-operation in the economic field. I think that we should all agree, in view of all the difficulties, that the progress that has been achieved since then is very encouraging. During the early post-war years, of course, there were obvious difficulties about making any rapid advance towards the Bretton Woods objectives.
Nevertheless, the Government of right hon. Gentlemen opposite were able to begin to move in the direction of greater freedom. They signed the G.A.T.T. and took part in two rounds of negotiations for general tariff reductions under that Agreement. They made a start, of which we were glad at the time, with reopening the commodity markets. They also played what I acknowledge as a very effective part in the move to bring about in Europe greater freedom of trade. I refer here to the Code of Liberalisation of O.E.E.C. for progressive reduction in quotas, and the setting up of the European Payments Union, which was itself a substantial step forward on the payments side.
If we cast our minds back, before the E.P.U. was set up sterling earned by individual countries in Europe was held bilaterally by them. It could not be spent outside the sterling area, or at least not without special arrangements being made. Under E.P.U. that sterling became transferable among the members. Therefore, the E.P.U. was itself a step in the same direction in which we are now taking another step, extending the same principle in a wider field.
Then, with the return to office of a Conservative Government, in 1951, though there were changes of method and practice, these broad accepted objectives were maintained. At the Commonwealth Economic Conference, in 1952, again there was general agreement among Commonwealth countries that the best interests

of the Commonwealth would be served by a policy of freer trade and payments. Subsequently, since 1952, we have made various moves, both on the trade side and on the payments side, to try to keep our progress in the two directions in step.
In 1953–54, for instance, a wide range of basic foodstuffs and raw materials were freed from import control and further progress was made in reopening the main London commodity markets. Since then, on the trade side, we have made further advances and by the end of last year virtually all the "tools of trade"—raw materials, basic foodstuffs, and so on—were free of import restrictions.
On the payments side, for a time after 1947, bilateral payment arrangements had to be made with almost all countries outside the sterling area, but, of course, those countries could not be expected to continue indefinitely readily to take sterling and to hold it unless they could have increasing freedom to use it.
As I have mentioned, the E.P.U. dealt with that problem largely among members of the O.E.E.C, and over a wider area administrative arrangements were made, as far as they could be, to facilitate transfers from one country to another, though not to the dollar area. By 1954, this administrative transferability was almost automatic, and in that year most forms of bilateral sterling were amalgamated and made freely transferable, except, again, to the dollar area. So, by then, we had reached a stage where there were in the main only two different forms of sterling, the official and the transferable accounts.
A market for turning transferable sterling into dollars had gradually grown up in centres overseas. As transferable sterling was freely convertible only within a circumscribed area, it was dealt in at a discount on the sterling that was officially convertible into dollars. When this discount became at all significant, operations known as commodity shunting—I think that the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) will be familiar with that process, which is a very difficult one—became profitable, and these operations led to a loss of the foreign exchange earnings of the sterling area and also damage to our traders.
Accordingly, as explained in the House in February, 1955, the Government decided to authorise the Exchange Equalisation Account authorities to intervene at their discretion in these markets—that is, the transferable markets. This has had the effect that de facto, over the last four years, it has been possible for non-residents to convert sterling into dollars at only a small discount on the official rate.
Some have argued, I know, that under this system we had freedom to allow the discount to widen in times of strain, thus taking the strain on the rate rather than on the reserves, but, in practice, that freedom has simply not been there. This is not only because a widening of the discount would have restored the profitability of commodity shunting; it is also because falls in the transferable rate—and this is very important—would have advertised a weakness in sterling, and,., by affecting confidence in sterling they would have increased the burden of maintaining the official rate within a margin of 1 per cent, on either side of our declared parity of 2·80 dollars to the £. To do that, to keep it within those limits, has been a firm international obligation since the days of Bretton Woods.
I mention this in some detail, because it shows that over the last four years we have been carrying the burden of convertibility without securing the advantages of it; both the general advantages I have been describing and the particular advantage of being able to manage our own rate of exchange in our own market. So, over this period, we have had the experience of managing our affairs with the transferable £ convertible for nonresidents into the dollar at only a very small discount below the official rate.
The steps we have now taken to make this convertibility formal are significant and important as a milestone on the course that all parties have agreed we ought to proceed on, but they do not add, in practice, to the strains which might be put upon us.

Mr. Roy Jenkins: I wonder whether the right hon. Gentleman could explain to the House why, if this makes no practical difference but brings considerable advantages, he has waited four years to do it?

Mr. Amory: If I may, I will refer to that question in a moment. It is a reasonable one. The hon. Gentleman will not have to wait more than another two minutes.
The point I am making now is that the events of the years since the war have clearly proved that we must in all conditions in our country have sound economic policies at home in order to maintain a satisfactory balance of payments and pay our way. If that is our object, as I trust it always will be, then it is a sheer illusion to suppose that our domestic policies need to be any more rigorous as a result of the unification of the rates than they would have had to be had the rates remained apart.
The point I want to emphasise is that the freedom which some have suggested we have to let the transferable rate go in times of crisis has been illusory. The move of 29th December will not, in practice, place a greater strain on our reserves, nor shall we be under any greater need to keep the economy free of inflation than we should have been in any event if confidence in sterling is to be maintained. In both these respects the change we have made is not a significant one.
I have referred to the nature of the change which has been made. I would like at this point to emphasise three things before I pass to my next point. First, it is not intended in any way to change the declared parity of the £ with the dollar or the margins for the £ against the dollar, which will continue to be 2·78 to 2·82 dollars. Secondly, we have not changed our control over capital transfers outside the sterling area. Exchange control remains and will be operated as our interests and requirements may from time to time dictate. Thirdly, the move which we have made on the payments side does not mean any change in our current policy on the removal of discriminatory quota restrictions against the dollar area.
Our policy on the trade side will continue to be as it was announced at Montreal, when we said that we intended to proceed with the removal of controls of imports from the dollar area as circumstances permitted, and that, all being well, we hoped to make a start in 1959 with as wide a range of consumer goods and foodstuffs as possible. It is our intention to see a programme for the


removal of such discriminations as remain well launched before we make the move from the post-war transitional provisions of the International Monetary Fund—that is Article 14—to the permanent provisions of Article 8. That move would make our currency de jure convertible in the full sense of the International Monetary Fund.
Coming now to the actual move, it was surely satisfactory that this was made in circumstances in which we acted in concert with a number of other European countries. One consequence was to bring into effect new arrangements for monetary co-operation in Europe. It has long been accepted by all members of O.E.E.C. that in these circumstances O.E.E.C. should move immediately from the E.P.U. to the European Monetary Agreement, which was negotiated in 1955 against exactly this eventuality.
The move was necessary because the E.P.U. arrangements were inappropriate, for a series of technical reasons, after a number of member countries had made their currencies convertible. Under the European Monetary Agreement a system of interim finance and multilateral settlements is continued for use by countries which desire to make use of them, though I think that in current circumstances most settlements will probably be made in the normal way through the market.
What is perhaps more important is that the European Fund, as it is called, is set up under which O.E.E.C, as a result of collective decision, can give member countries credit on those occasions when they need it and on terms and conditions considered appropriate collectively by O.E.E.C. That is no weakening of European co-operation. It would certainly have been entirely wrong if E.P.U. had been brought to an end without putting something satisfactory in its place, because the achievements of E.P.U. have been very considerable. It played an essential part in the recovery of Europe in the early days after the war and in the strengthening of Europe's relations with the outside world. So I have no stones to throw at E.P.U. It was a great success during that period of its work.
It is, however, by no means the case—this is the impression one gets from the way I have heard some critics speak—that the E.P.U. could provide unlimited amounts

of credit. Several countries, and, in particular, France, had virtually exhausted all their credit, and E.P.U. could continue to function satisfactorily only if the creditor countries, and especially Germany, were prepared to provide further credit on a massive scale, but even then in several cases ad hoc arrangements outside E.P.U. proved necessary. So a change in this respect was becoming due in any case.
The change to the European Monetary Agreement is in a way a further development in a direction that was already increasingly being followed. I ought to say that the arrangements for the European Fund provide countries which, get into difficulties with a prospect of help on a scale comparable to that available under the general and the ad hoc arrangements of the E.P.U., though not automatically. The credit and the settlement arrangements of the Monetary Agreement are also designed to support and encourages the liberalisation of trade in Europe. Credit will also, of course, be available in appropriate cases through the International Monetary Fund, whose resources, I am glad to say, are now to be increased.
The European Fund will provide this new credit in part out of the residual assets of the E.P.U., assets which in the main were originally made available through the generosity of the United States Government, and in part from contributions by member Governments on the basis of quotas agreed in 1955. It has been accepted, however, that circumstances have changed a good deal since 1955, and the right relationships of quotas to each other are now to be further examined. So much for the new machinery.
I accept, of course, that the timing of a move of this kind must always be a matter of judgment, and the Commonwealth accepted, both at Montreal and at previous conferences, that the final judgment must be made by the United Kingdom. There have, of course, been other times during the past few years when we might have made this move, but if we had, for one thing we should not have had the practical experience, to which I have already referred, of handling sterling over a period of four years when it was de facto convertible at only a small discount on the official rate. I think that it was a sensible


and practical intermediate position to adopt. As a result of that experience we have now felt able to move on. Also, to have moved earlier would have meant taking this step on the payments side before we had carried our policy on the trade side as far as we have been able to do.
But to have delayed longer would, in my judgment, have been wholly wrong and, unjustifiable. If it was right, as I believe it was, in the days of the Government of right hon. Gentlemen opposite to reduce discrimination between European countries and to fortify these arrangements by arrangements which allowed for the free transferability of currencies in Europe, surely now, when we are stronger, it is right to extend the same advantages over a wide area. I believe that we have reached a point in time now when these freer payments arrangements have become very important indeed if trade is to continue to expand. So I am confident that the timing will prove to have been well chosen.
The advantage that the unification of the rates brings with it of restoring London to its position as the main exchange market for sterling is of practical importance. Today, our reserves stand at £1,100 million, and we have a standby with the International Monetary Fund of about £265 million. Against this we have potentially short-term obligations to the International Monetary Fund of £260 million. That includes about £60 million which will represent our new increased quota, and £200 million in repayments to be made over the next three years. When we make these repayments, incidentally, they will entitle us to substantially increased drawing rights in the Fund, which will, therefore, increase what we might call our second line of reserve. In the rather longer term we are due to repay 250 million dollars to the Export-Import Bank between 1960 and 1965.

Mr. J. Grimond (Orkney and Shetland): The right hon. Gentleman spoke of £60 million as owing to the I.M.F. for our increased quota. Is that the total, or is it the gold that we have to provide?

Mr. Amory: That is the gold. The total is very much larger. The advantages that we get in increased drawings are

enormously greater than the payments that we should have to make.
The sterling balances now amount to under £3,300 million, much of which is invested long-term or held here for development plans and is not likely to be spent quickly. Of that total, only about £700 million is today held outside the sterling area. That shows a much better relationship between our reserves and our liabilities than at any time since the end of the war.

Mr. David Price: Does my right hon. Friend include in our reserves the Government's holding of dollar securities, which, I understand, amounts to about 900 million dollars? That does not seem to have been made clear, but it adds to the strength of sterling.

Mr. Amory: I agree with my hon. Friend that we must bear those securities in mind, but I have not included them in the financial picture which I have presented. They are something additional. Some of them were taken up from me during the war, and I feel that I have a sort of joint proprietorial interest in them.

Mr. Harold Wilson: Will the right hon. Gentleman tell the House how much holdings have been run down by sales by the present Government since 1951?

Mr. Amory: I am not in a position to give any information of that kind today.
Other circumstances also were particularly favourable to a move at the present time. Successive steps taken by the Government have brought inflation under control. Over the last year prices have been more stable, and as increases in money incomes have been a good deal less than in recent years, costs, too, are more stable today. The recession in the United States has now turned the corner, and there are signs that economic expansion is about to be resumed in other countries as well as here. All this provides a sound basis for a resumption in expansion of world trade.
Important, too, is the way in which this change has been carried out. Shortly before Christmas, the French had under consideration certain economic measures and we, on our part, had this step in our minds as one to take at a moment that would be convenient for ourselves and


our friends in other countries, but we had taken no decision on timing.
At last month's meeting of O.E.E.C. I had talks in Paris with the French and German Ministers of Finance and we all thought that the time was ripe to coordinate such a move. The undertaking and successful execution of a practical piece of co-operation of this kind in the economic field seems to me particularly encouraging and promising at this stage in European affairs.
The judgment of the rest of the world seems certainly to have endorsed our view that the time was, in fact, right. Before we merged the rates, the transferable account £ stood at about 2·79½ dollars, and American account at about 2·80½dollars. External sterling today stands at almost 2·81 dollars. This is the combination of both these rates and accounts. Sterling has also improved its position against almost all the main currencies of Europe as well. That, I think, is tangible evidence, at any rate, of general agreement that the move was healthy and timely, and has been generally welcomed.
The right hon. Gentleman the Member for Huyton said last April that the strength of sterling, and all that depends on it, must take priority over all other considerations. If, as I hope, that is Labour policy, then right hon. Gentlemen opposite need not fear the results of this unification of rates.
I need not say much about the actual provisions of the Bill. The House will wish just to know what financial liabilities we have under the Agreement. First, there is, our contribution to the European Fund. The total capital of the. Fund provided for in the Agreement amounts to 600 million dollars of which rather more than half is to come from members' contributions. The Fund already has access to over 100 million dollars transferred from E.P.U. Contributions from member countries will be called up as they are required to maintain a reasonable working balance and to meet any special needs.
The United Kingdom's total contribution was fixed in the Agreement at just under £31 million. As I mentioned, these quotas on which the contributions were based are at present under review. Secondly, I ought perhaps just to draw

the attention of hon. Members to the arrangements agreed by O.E.E.C. for dealing with any case where a member defaults in one of the monthly settlements.
Article 12 of the Monetary Agreement lays down, in effect, that the European Fund should not bear more than a total of 50 million dollars of default and that the burden over that figure should be transferred to members with bilateral claims against the defaulting member in the accounting period concerned. This means that circumstances might arise in which we have to make a payment in dollars to the Fund to help to cover another member's default, receiving in exchange a claim for repayment by the Fund when the defaulter has paid. This provision is prudent, but in more than eight years' experience of E.P.U. we have not any reason to expect any country to default in its monthly settlements.
Because of the importance of providing a stable long-term basis for monetary co-operation, the Agreement was deliberately designed so that it could remain in force for an indefinite period. However, the working of the Agreement is to be reviewed before the end of the third year of working and the system of settlements is to be reviewed before the end of the first year, in fact, before 27th September next.
There are also provisions enabling members to withdraw, if they wish to do so, when they would get their contributions back, and allowing the Agreement to be terminated if and when certain conditions are fulfilled. The annex to the Agreement sets out the arrangements for liquidating the European Fund. The Clauses in the Bill, I think, are adequately covered in the Explanatory Memorandum.
I ought just to say that Clause 1 deals solely with the Exchange Equalisation Account. Our dealings with the European Fund are to take place through this Account. This Clause gives the statutory authority which we think it desirable to seek for the Account to be used specifically for the purposes of the European monetary Agreement.
Clause 2 makes provision for the necessary payments to be made from the Consolidated Fund, for the Treasury to borrow as required and for any moneys


paid back to us as a result of the Agreement to be taken into the Exchequer and appropriately applied. This Clause, in subsection (2), also sets a limit to our total contribution in terms of the sum at present laid down in the Agreement but subject to increase by order of the Treasury.
Clause 3 provides a further element of control of which, I think, the House generally likes to be reminded. It stipulates that any Treasury order to increase what can be paid out of the Consolidated Fund under Clause 2 must have been, approved by an affirmative Resolution of the House. It also enables the Bill to apply not only to the European Monetary Agreement as at present drawn upland signed, but to that Agreement as it may subsequently be amended in the future. Finally, it takes the opportunity to tidy up the Statute Book by repealing those parts of two previous Acts dealing with European payments which are now obsolete and no longer required.
These are the broad lines of the rather technical Measure which is required to enable us to continue to play our full part—as we certainly wish to do—in monetary and economic co-operation in Europe.
I apologise for being rather long and thank the House for its extreme patience with me. I should like to say, in conclusion, that I am confident that most hon. Members when they think this over will conclude, as I do, that the measures I have described this afternoon are fully in accord with the external economic policies agreed and operated by all parties in this country since the war, and will welcome them as a sound and very practical contribution by the United Kingdom to the cause of expanding world trade. I commend the Bill to the House.

4:29 p.m.

Mr. Hugh Gaitskell: I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:
this House declines to give a Second Reading to a Bill designed to implement policies which, through the ending of the European Payments Union and the acceptance by the Bank of England of an obligation to supply gold or dollars on demand to all foreign holders of sterling at a fixed rate of exchange, makes more difficult the achievement and maintenance in Great Britain and Western Europe of industrial expansion and full employment

This Amendment is drafted in the terms that I have read out because it appears to us to be the only way open, under our rules of procedure, by which we on this side of the House can register our disagreement with the measures associated with the Bill.
We recognise, of course, that once the European Payments Union came to end, then, automatically, by decisions taken in 1955, the European Monetary Agreement was bound to come into force. But, as I shall try to explain, we do not agree with the Government that it was inevitable that the European Payments Union should come to an end and we have some serious criticisms to make on the decision about convertibility.
Our opposition to this measure should not come as a great surprise to the House, because on several occasions here we have criticised earlier steps taken by the Government in this direction and described by the Chancellor this afternoon. That does not mean that we have abandoned or modified our support for the long-term, ultimate objectives to which the Chancellor referred. It simply means that we have disagreed with the moves made by the Government on a number of occasions, and that we believe that the recent decisions, like the earlier ones, are premature and even dangerous to our economy.
Our opposition to the measures announced at Christmas is also in part due to our belief in the possibility of the Government taking further steps which will make the exchange situation even more risky. I will later try to explain why we think that that is likely to happen, and why we oppose those things.
We can all agree with one thing which the Chancellor said, at any rate, that this is a highly complex and technical subject. It is not easy to be absolutely sure of one's ground in this field, and it is even more difficult to carry the attention of the House. Like the Chancellor, I will endeavour to do that by keeping my criticisms as factual as I can make them, since if one did not do that vague generalisations would be of little value.
There is something else which we must note at the start. It is necessary to speak on this subject with care. What we say here can have an effect upon opinion


in the country and the world, and misunderstandings can easily occur. I shall endeavour to speak with care, but, at the same time, I cannot accept the view which has been put forward in some quarters, that, whatever our views on what we believe to be a vital issue, the Opposition should remain dumb and not give voice to our genuine misgivings on this subject.
This afternoon, we are discussing two measures, the ending of the European Payments Union, on the one side, and, on the other, the decision to make the £ convertible—and hon. Members will appreciate that in using that phrase I am simply accepting it in the sense described by the Chancellor. The two measures are connected, but not identical. As the Chancellor said, it is quite true that the introduction of convertibility would certainly mean the ending of the European Payments Union, since if currencies were automatically convertible on a cash basis no one would go through the credit process which is implicit in the European Payments Union. On the other hand, it is not true that the ending of the European Payments Union necessarily involves convertibility. I shall begin by making a few brief remarks about the European Payments Union.
The Chancellor mentioned a kind of sentimental interest which he had in American securities. I must declare a kind of sentimental interest in the European Payments Union, because I was very much concerned with the negotiations which filed up to its establishment. I think that there is general agreement about the remarkable achievements which have resulted from that Agreement. But I want to underline why I believe that the European Payments Union was so successful. It was partly because it provided a clearing system under which multilateral payments became possible, so that if Denmark, for instance, was earning a surplus in its trade with France it could use that surplus for meeting a deficit with the United Kingdom.
But, there was another reason to which I have always attached even more importance. It was that woven into the system were automatic credits whereby, if a country incurred a deficit over a given period with the other members of the European community, it automatically received a certain amount of credit.

Equally, a country which found itself in surplus with other members of the agreement was obliged to grant credits to the Union. As a matter of fact, the system was directly based on an idea of the late Lord Keynes which was worked out in a famous paper called "The Clearing Union". It was far more in line with Lord Keynes's ideas than the International Monetary Fund which emerged from Bretton Woods.
The principle enshrined in the European Payments Union was that not only debtors but also creditors should be expected to make adjustments to bring their balance of payments into equilibrium again. There was thus far less incentive to countries to try to achieve a trade surplus against each other, because, if a surplus was earned, to a certain extent it had automatically to be loaned. I believe that to be a principle of immense importance. I am sorry that it was not possible to negotiate its wider acceptance at Bretton Woods, but at least we upheld it in Europe. In consequence, it was very much easier to get the agreement of various countries to the measures of liberalisation which accompanied the introduction of the E.P.U., because they did not have the same fear, which they would otherwise have had, of getting into trouble through having a deficit and having to meet it immediately with a gold payment.
When that principle of obliging creditors to adjust themselves is abandoned, and when the disincentive against earning a surplus is removed, it is unavoidable that there should be a generally deflationary influence let loose. Each country will now be more frightened of getting into a balance-of-payments deficit. To that extent, it will be more frightened of expansion; to that extent it will be more inclined to adopt restrictive monetary policies and even, as may well be the case, to reintroduce direct restrictive measures on trade.
The answer which the Chancellor gave to all this, even if he concedes the points of principle which I have been trying to establish—and I do not know whether he does—is that the E.P.U. was dead already and that all we were doing was to bury it. I admit that when the British Government agreed to the increase in the proportion of cash or gold payments, first in 1954 and then in 1956, increasing them from 40 per cent, to 50 per cent., and then from 50 per cent, to 75 per cent.,


that reduced the amount of automatic credit available. To that extent, they undermined the very purposes which the E.P.U. set out to achieve. But why, after all, did the British Government agree to those changes? We certainly criticised them often enough from these benches; and from such knowledge as I have of our standing in O.E.E.C., I cannot accept that changes of that kind could possibly have been made over the heads and against the will of the British Government.
I admit, too, that as the Union finally stood Germany had become a very large creditor and France had run through her quota of credit. However, I do not accept that everybody else was out of line. I have been through the figures and, so far as I remember, the Belgians and the Dutch had a substantial surplus, the Italians a moderate deficit, while we had run through about half our quota. However, apart from France and Germany, I do not accept that an alarming situation had developed.
In any event, there were surely two alternatives which should have been considered. It might have been possible to try to negotiate a fresh agreement, funding the debts already incurred. Our own was funded a year or two back. There is no reason why the French debt could not have been funded, too. They have had to do it now, and it could have been done without breaking up the European Payments Union. Even if that had been impossible, my view is that it was a pity that we simply scrapped the Union in that way—I admit that the decision was taken, in a way, in 1955—without making an attempt to introduce the principle of automatic credit, in at least a limited degree, in a wider international monetary association.
The new association to which the Bill refers is essentially different in character, because the credits which will be available—and there is a fund for the purpose—are in no sense automatic, and are to be granted only when O.E.E.C. decides. Here we come to a rather important point. O.E.E.C. is one of those international organisations where the right of veto prevails; that is to say, unanimous decisions have to be reached, as the Ministers there know very well. I do not know what the position will be. Does it

mean that before a single dollar or pound of this credit can be issued to anybody there has to be unanimity on the Council of O.E.E.C. If so, it is extremely unlikely that much will be done in the granting of credits.
I can only express my very real conviction that the effect of all this—the substantial repayments which have to be made over the years, the absence of automatic credits and the dropping of the principle that there is an obligation upon the creditor countries to put right their balance of payments—is bound to hold back expansion in Europe and check recovery there. That is our main criticism of this decision.
I turn next to the question of convertibility. What is the case for it? There are three separate arguments which, in varying degrees, have been put forward this afternoon and in the Press to defend these decisions. It has been said—and to some extent it was repeated by the Chancellor today—that in any event this was something which, in a way, was forced upon us; something which the rest of Europe wanted, and that we could not very well have kept out of.
I accept what the Chancellor said, that, strange as it may appear, the immediate initiative for this came from the French, but inquiries that I made recently in Paris yielded an account of the matter which puts a rather different complexion upon it. I was informed that the Governor of the Bank of England told the Governor of the Bank of France that it was the decision of Her Majesty's Government to introduce convertibility at some time between the early weeks of December—when this conversation took place—and the end of January, but that we did not mind when, within that period, it was done.

Mr. Amory: rose—

Mr. Gaitskell: Before the Chancellor intervenes, I must tell him that I obtained this information from a very well-informed source.

Mr. Amory: I mentioned just now that we had this question very much in mind, and were feeling that the circumstances were, in general, favourable for a move, but I repeat that we had taken no decision on timing.

Mr. Gaitskell: Is the right hon. Gentleman quite certain that nothing was


said to the Bank of France about the desire of Her Majesty's Government to do this before the end of January?

Mr. Amory: That is quite a different thing from saying that a decision— [HON. MEMBERS: "Oh."] I said in my speech that it was our desire to make this move as soon as circumstances were propitious, but no decision had been taken whether or not to do it, because we did not know whether circumstances would be propitious.

Mr. Gaitskell: I am concerned simply with trying to unravel exactly from where the initiative for this change came.

Viscount Hinchingbrooke: Why should it not have been made?

Mr. Gaitskell: The noble Lord asks why not? That is a different issue. For the moment I am trying to clear up the question whether the Government claim the credit for it—if they think that is what they are entitled to. My impression is that there was an initiative of the kind that I have suggested.
The second argument put forward in support of the decision is the rather strange one, repeated by the Chancellor, that it really makes no difference except to bring a little additional foreign exchange business to London. The third argument is again implicit in what the Chancellor said. It is that the dollar problem is really solved now; that we need not worry any more about a shortage of dollars and, therefore, there is no case any longer for discriminating against the dollar.
I accept straight away that the introduction of convertibility will mean some additional business for the foreign exchange dealers in London which has hitherto been going to the bankers in Zurich, but it has been estimated that the total amount of business likely to come to them does not exceed about £125,000 a year, which is certainly not significant in our balance of payments. But we ask this question: if the Chancellor is really saying that there is no essentia] difference, why was not the change made earlier?

Mr. Amory: I have given two reasons for that. The first is that at that time we preferred to move more cautiously,

by the intermediate stage to which I have referred, which we have had for four years, and the second is that we have today moved much further in the removal of trade discrimination than we had earlier.

Mr. Gaitskell: But if there is no additional strain upon the exchanges what does it matter if the situation is more propitious? What is the point in talking about the most favourable moment? It cannot have any significance whatever if no greater strain is imposed.
Shortly after the Lord Privy Seal announced that we were to support the market for transferable sterling, in reply to a Question which I asked on 1st March, 1955, when I said:
Does not the right hon. Gentleman realise that the intervention of the Exchange Equalisation Account…really amounts to convertibility of the £ by the back door?
the Minister replied:
No, Sir. It is not as simple as that. In answer to the right hon. Gentleman's point…the position is that this practice does not alter or increase the rights of a foreign holder of sterling. The authorities will refrain or intervene as they think fit, but I do not think that we have quite reached the situation which the right hon. Gentleman has described."— [OFFICIAL REPORT, 1st March, 1955: Vol. 537, c. 1866.]
It is thus clear that at that time it was not regarded as convertibility and, therefore, that it looked as though convertibility would make some difference.
Personally I think that it is better that the Government should rest their case on its making a difference rather than upon its making no difference at all. I would say, at any rate, that in my opinion it does make a difference, for four substantial reasons. The first is that so long as we were merely supporting the transferable rate it was possible to allow that rate to change if we so desired. The decision announced in 1955, in the Lord Privy Seal's words, confirmed that it was simply an administrative act, but did not involve any continued commitment to hold the rate to a particular level. Therefore, if it had seemed sensible to do so we could, in the case of the transferable rate, have allowed the £ to float—to use a technical phrase.
I know that the Chancellor says that we could not have done that because commodity shunting would then have taken place. This is not an easy subject


to discuss across the Table of the House of Commons. But the question whether or not we lose more gold when we allow commodity shunting or when we support the exchange rate is certainly not a clear one. It is a matter upon which very different opinions are held. I have never seen any convincing evidence brought by the Bank of England or anybody else to show that allowing the exchange rate to decline would mean a greater loss of gold, whereas there is certainly no question but that the support of the transferable rate involved us in a very heavy loss of gold in 1957. The figures have been quoted in the House.
But it may be asked, what would be the point of having this flexibility in the exchange rates? I am speaking, of course, only of the transferable rate. The answer is simple. It is that it is far the best way to catch out the speculator. The great difficulty that we are always up against if we have a fixed rate and there is any pressure on the exchange at all (which depends on the level of the reserves and other matters to which I will come to in a moment) is that the speculator against the £ can never lose. There is no danger of his being caught out. The great advantage of flexibility in the rates is that you can, if you will, play the market and catch him out.
There is nothing very discreditable about this idea. When the Government were contemplating going back to convertibility in 1955, all the talk was of a floating rate, for the reason I have given. Even today the Canadian rate of exchange is completely free, and moves up and down. Do not let us get too worried about this being in principal something that should never be contemplated at all. Therefore, the decision to introduce convertibility in this sense deprives us of one possible weapon—I am putting it very moderately—against speculation in time of trouble.
The second reason why I believe it makes a difference is that some nonresident holders of sterling who perhaps would not have wished, being friends of our country, to take their sterling and sell it in the grey market in Zurich, will feel no compunction at all now. Why should they? It has become completely respectable.
The third argument is one to which the Chancellor made no reference, but

which I think he will have to consider. We are the central bank for the sterling area. We have a number of partners and over the years they have been extremely helpful and co-operative in restricting their demands for dollars when they thought it was in any way necessary to do so. I wonder whether, now that we encourage non-resident or foreign holders of sterling to believe that it is all perfectly above board, we shall have quite the same restraint as we have had from members of the sterling area in the past. I think that it is only too likely, in the circumstances, that the central banks of the sterling area will say, "Why should all this advantage go to foreigners and be withheld from us?"
The fourth reason why I believe this makes a change is that it is certainly expected to be followed by other changes which will increase the risk of vulnerability of sterling in adverse conditions. What do I mean by that? There is the question of dollar imports. I notice that the Chancellor said that for the moment no change was contemplated, but everybody is pointing out that if we give to foreign countries again the legitimate right to convert from sterling into dollars and to use those dollars to buy whatever they like, it is not logical or easy to withhold the same right from British citizens abroad and other residents in the sterling area. Everybody is expecting that in a short time there will be a complete removal of quota restrictions from dollar imports on balance-of-payments grounds. Some may be maintained quite separately on specific protective grounds, but we are not concerned with that, because it would not be discriminatory. I should have thought, as The Times suggested, that it would be very much better to allow the strain of additional dollar imports to take place before we took the much wider step of introducing convertibility.
The second reason why I think that this Act will be followed by other changes is that, certainly in the City of London, it has been taken as symbolic, and as a clear index—I do not think that the Chancellor said anything in any way inconsistent with this—of further steps towards complete freedom.
What measures? Two measures in particular: first, freedom for nonresident capital, which is still covered by


controls, to a certain extent anyway; secondly, and more important, complete freedom for the export of British capital. I will return in a moment to these dangers, as I conceive them to be, because we cannot ignore them in this debate.
This decision means that to secure—I concede that it will do this—some additional international business for the City of London we shall increase the risk of and the scope for speculation against the £ in time of trouble, while, at the same time, throwing away, removing from our grasp, one possible weapon to be used against that speculation.
What of the third argument, that there is no need to worry, that the dollar problem is solved and that the reserves are now so substantial that, together with the other things on which we rely, like the I.M.F., we can stand any kind of strain? Let me say here what I have said already in public. Of course, if there were very large reserves, our attitude would be greatly affected. I was frequently asked by the Americans in 1950, when our reserves were rising rapidly, to say in what circumstances and at what level I thought convertibility would be possible.
I said, on the advice of the Treasury officials, that it was quite out of the question, when the reserves stood at the same level as they do today of 3 billion dollars, which was far too low, and that we might begin to think about it when they got to 5 billion and that probably 6 billion or 7 billion would be the figure. If that were the case today one could take a different view, but it is not the case. Let us have a look at the level of reserves as they really are.
The reserves stand today at £1,096 million. There has been an increase; nobody denies that. But against this, we have to remember the amount that has been borrowed and has to be repaid, because some of it has contributed to this result. It is worth adding the amounts up. First, the Export-Import Bank loan of about £89 million. Then there is the I.M.F. loan, mentioned by the Chancellor, of £200 million, of which £70 million has to be repaid next year. There is the deferment of the interest on the United States loan in 1956 of £37 million and the deferment of the interest and capital in the following year, 1957, of £64 million. There is, finally, what is

colloquially called "Adenauer aid", the transfer in a lump sum of £75 million in repayment of the German debt to us. These figures amount in all to £466 million, leaving only £630 million as the net reserve.
That is a very different picture from £1,096 million. Even then, we must remember that the reserves were only built up to their present level with the aid of certain other things as well, of which the most notable was the sale of the Trinidad oil investment, bringing in £177 million. If one compares this with the liabilities—the figures have been given and I do not want to go on quoting them—they are still pretty substantial.
The Chancellor can say that there is no danger of the sterling area balances being run down; is he quite so sure about that? Are there not very useful balances accumulated by some of our former colonies, like Ghana and Malaya, which they may well wish to run down? Again the Chancellor speaks of the change in the situation, but in the last year the latest figures, available in September, include an increase of £100 million due to the O.E.E.C. group, which is certainly very hot money indeed.
When we consider just what the net reserve is and what the liabilities are there is no doubt that these are in an extraordinarily unsatisfactory proportion. It is the same if we measure assets against the amount of trade. Our gold reserves—this is after taking off the various amounts that I have listed—show that there is still a proportion of only one to twelve of reserves against turnover, in sterling trade. Frankly, I cannot see how, in these circumstances, one can take quite such an optimistic view of riding out any possible trouble that may occur because of the size of the reserves.
I agree that there has been an improvement both in the reserves and in the reserve-liability picture over the last year, but, when we take into account the reasons for that improvement—which the right hon. Gentleman will agree, largely centre round the fortuitous but very fortunate improvement in the terms of trade, which more than explains the improvement in our balance of paymens—and the decline in stocks, which appears to have taken place in the course of 1958, I do not think that one can feel quite so satisfied that this change from what,


after all, as the House will remember, was a situation of major crisis fifteen months ago, can possibly justify such a step as introducing convertibility.
That brings me to the question: what about the world dollar situation? There is a lot of talk to the effect that the dollar problem is solved. It is true that in the past year there has been a very remarkable flow of gold from the United States to the rest of the world, amounting to 2,000 million dollars, but is this the kind of thing we can usually expect? Is it not much more likely that this was a quite exceptional situation? Is it not very much more likely that in the course of 1959 interest rates in the United States will go up? That is what is being prophesied now because they are already getting frightened of inflation. Is it not then going to face us with the difficulty that while our bankers and, I think, many people are saying, quite rightly, that we want lower interest rates here for industrial expansion, we shall face the dilemma of having lower interest rates and seeing the gold go back, or of not having the low interest rates at all?
Finally, let us bear in mind, when we look at the American situation that if gold losses go on occurring from America we would be very rash to assume that American public opinion will sit by quietly and let that go on happening. They have been remarkably quiescent so far, but it would be extremely rash to assume that there will not be some reaction on the part of the United States institutions and citizens.
If we look at the United States balance of payments today we see there is one very striking thing about it. That is the ever-growing increase in the amount of United States investment abroad, and therefore, in the amount of dividend and interest payments which have to be transmitted, which are transferred, back to America. The figures are really quite remarkable. The total of American foreign investment today stands at 54 billion dollars—a huge sum—and it is increasing every year. In a sense, we want it to increase.

Mr. Cyril Osborne: Of course we do.

Mr. Gaitskell: Yes, the earnings are piling up, but not all are being transferred there and we shall get into a

difficult position if, at some point, there is a desire to repatriate some of this money, or indeed, to repay a certain amount of the accumulated profits which have been reinvested here.

Mr. Osborne: Surely the earnings cannot be repatriated to the dollar owners until the economy has been so stepped up that there are the earnings to transfer.

Mr. Gaitskell: There can be no doubt at all that if we remove and continue to remove all restrictions of the kind we have talked about there will be nothing to prevent American companies transferring larger amounts of dividends year by year. They are already doing that. All I am saying is that I think that this is bound to put a strain on the exchange position between America and the rest of the world.
If we consider now the United Kingdom balance of payments prospect—I do not think that there is much disagreement in the House about this—we find that we have had a very favourable first half-year in 1958, but we all know perfectly well that that was simply due to the terms of trade. The Board of Trade itself is already giving warning that it cannot go on and that in the second half we shall be generally back in the same position as we were in the second half of 1957.
Perhaps the most striking commentary on all this came in a very interesting address by Mr. Tuke, Chairman of Barclays Bank, who went out of his way to emphasise that virtually the whole of our favourable circumstances were due to this. I have no doubt that the Chancellor of the Exchequer will have noted that he even dismissed the Bank Rate as having had very much to do with it and, in effect, ascribed our astonishingly favourable balance of payments in the first half of 1958 and the continued strength of sterling during the second half to this remarkable change in commodity and import prices which has been so much to our benefit.
Another factor that we have to take into account in judging our position is that some decline, according to the latest information available, took place in stocks this year. If there was one thing that I should have thought we should all have learned by now it is the extraordinary difference to our balance of


payments which can be made by variations in stocks from year to year.
Taking all this into account and taking into account, above all, the fact that this situation at home has been accompanied by unemployment and slack in our economy—three years' stagnation followed by decline—we really cannot assume that if the Government really intend to carry out expansionist policies, they will have quite such a favourable balance of payments situation in the next year or two. I do not suppose they themselves would make that claim, but, if they do not, they are saying, "Because there is a favourable moment now, after this half year, we are going to take this step, even though we know that the storm may be going to break a little later on."
For all these reasons, I cannot accept the idea that the dollar problem is solved and that there is no problem for the future. The Chancellor may ask, "What is it that you are really worried about? What is it that you think will happen concerning the exchanges?" I want to make plain that, despite my preceding remarks, our opposition to what the Government have done is not based on the assumption that we think that under any Government this country will get hopelessly out of line with the rest of the world, that our price level will be miles above that of everybody else, that we shall price ourselves out of markets and have huge balance of payments deficits or anything of that kind.
I am not saying that that is what I am contemplating and that, for that reason, I am worried about convertibility. Frankly, the only circumstances in which I can envisage that situation developing would be, perhaps, in the event of world depression, when, indeed, we should have to consider whether we were wise to continue with the same exchange rate as we had before; but that, happily, is a purely academic question at the moment and not one with which I am concerned at all.
Our case is based on the danger of speculation based on rumours and personal judgments, often ill-informed, about long-term prospects here. The fact is that we cannot simply say either, "Everything is all right. There is no danger of inflation. We have a very strong position and everyone knows it," or, "Everything is all wrong and everyone knows it."

There is room for a great deal of disagreement here. The best way that we can appreciate that is to consider what has happened in the four major crises we have had since the war.
First of all the 1949 crisis. I personally believe that at that time the price level here, owing to the changes since pre-war days, was out of line with the United States. But nevertheless, it is the fact that in 1949, when we were forced to devalue, we had a surplus—a small surplus but still it was a surplus—in our balance of payments. It was not a bad balance of payments year. It is, secondly, true—as I well remember—that the whole trouble started because of rumours in Washington. And thirdly, it is true that another contributing factor was a quite slight American recession which put down the commodity prices of sterling area goods. There may have been an underlying cause, but the immediate cause of the trouble was, frankly, rumours leading to speculation.
In 1951, on the other hand, the balance of payments, as I well remember, was in very heavy deficit. But the cause of this was not a lasting cause. The right hon. Gentleman knows perfectly well that the two reasons for that large deficit were, first, an astonishing change in the terms of trade against us, because of the Korean war, costing £500 million—these are the official figures—and secondly, a very substantial increase in stocks. But it came right as soon as commodity prices turned and prices fell. We had a great improvement in the terms of trade and no longer had to increase our stocks. So once again, there was no underlying long-term weakness here, but there was a very big speculative movement based on the factors which I have mentioned.
If we turn to the 1955 crisis, there was a balance of payments deficit, but it was not very large—about 150 million. But again, the crisis was immensely aggravated by nothing but speculation.
But the most extreme case, one from which I should have thought that right hon. and hon. Gentlemen opposite might really take some comfort, was the 1957 crisis. In 1957, we had a large surplus in our balance of payments. In that year, there was no question of a great "boom" and a "bust". Our industry had already been stagnant for a couple of years. The cause of this crisis, as indeed the then


Chancellor freely admitted, was speculative. It was initially started by a flight to the mark, and it was continued because of the view taken—in my opinion a completely fallacious view—that we were in danger of some vast inflation. This view was taken despite the fact that anyone who studied the figures would know that the terms of trade were moving heavily in our favour and there was a commodity price recession which was almost bound to assist the United Kingdom.
It is undeniable that an expansionist policy at home is quite likely to lead to similar speculative moves which may be of a very big scale indeed. I admit that some speculation was inevitable—indeed what I have said shows it—in the pre-convertibility era. It is no part of my case to say that we can stop it altogether. But we contend that what is being done now will inevitably make it much worse than before.
Here I want to draw a distinction which I hope goes to the heart of the whole trouble. If we were a country, similar to most other countries in the world, and concerned only with our own balance of payments; if there were no sterling area and we were not a great centre of finance, I could well understand that, looking ahead at the United Kingdom prospects and with our reserves—if we had the same reserves as we have now—this might be quite a sound move to make. I would even say that if we were thinking not only in terms of the United Kingdom, but of the United Kingdom as also a reserve banker for the sterling area—holding the reserves of other members of the Commonwealth—were that so, I think possibly it might be said that there was no undue risk.
But we are not only that. What we are as well, and what we are emphasising by this step that we are determined to be even more—and I dare say that when hon. Members think first about this they might think it a splendid thing—is a world finance centre. We want to be that even more. We are always talking about sterling as a world currency. That is all very fine, but let us not underestimate the enormous additional strains which a decision of that kind places on us. The whole basis of the doctrine of convertibility is, of course, to build up and

to give as much freedom as possible because on that basis we can get the most business to the City.
That brings me to the point I mentioned earlier, that I thought convertibility was dangerous, significant, because it was being taken as a signal for further relaxations. One has only to look at the financial Press to see that.
For instance, on 30th December—as early as that—the Financial Times contained a long and interesting article about this very point; about what the City would be demanding in the way of relaxations. It was entitled, "But they want still more." What they were asking for was freedom to lend abroad which had been stopped during the 1957 crisis, and freedom to lend to finance trade between other countries as well as between this country and its trading partners. There can be no doubt that the City view of convertibility is that it is the thing to bring foreign deposits. That sounds all very well, but let us be clear that this is "hot money". It can be, and will be, withdrawn if there is any danger whatever.
As I have said, already there is a demand for lending abroad more freely and I have no doubt that there will be a demand for greater freedom for the convertibility of foreign-owned securities as well. The Chancellor says that we are not making any changes, that resident sterling is still fully controlled. But the controls, even now, are not adequate. There are holes in the sterling area system. There are the famous ones at Kuwait and Hong Kong. Although I know that some steps have been taken to put that right, I am also told on good authority that it is not in the least difficult to get round them. It is possible to form an investment trust in Kuwait and transfer money to that trust which would apparently be completely free to buy dollar securities as it liked.
The same thing appears to be the case with Hong Kong. We are all familiar with the Hong Kong issue because of a certain letter which was written some time ago. I wish to emphasise to my hon. Friends as well as to hon. Members opposite that I am not making a personal attack. I am simply saying that here are our fellow citizens who are carrying on a perfectly legitimate business. But in the


process of doing so, it is quite possible that they may be doing things which seriously damage our economy. I have some sympathy with Mr. Keswick when he wrote that letter in which he said:
Again, this is anti-British and derogatory to sterling, but on balance, if one is free to do so, it makes sense to me.
He had an obligation to his shareholders. He had to think of that. The real blame, in my view, does not rest on him or on people like him. It rests on the Government for allowing these things to happen; and we say that under present circumstances, instead of talking of relaxing still further, it would be a very good thing if the Government tried to tighten it up. But we can be sure that all the time the pressure will be to relax still further and in due course to allow complete freedom of capital export as well.
It is not only that the speculative pressure in a difficult situation will be greater as a result of this decision. There is something else with which we are much concerned. It is that because of this, and in order to prevent what might be a run on the £, we shall be told that our internal policies have to be adjusted. We know very well what that means. We shall be told that we must cut back; that we are trying to do too much; that there is overfull employment. We shall be warned that we must delay expansion; not because of anything that is done, but because of what might be thought by speculators.
Some idea of what is implied in this came out very clearly in an article in the Economist of 17th January. As it happens, it was not directly about expansionist policy, but about what sort of Budget the Chancellor should have. I am sure that the right hon. Gentleman will have read it. It advised him to take certain action and to choose certain taxation remissions rather than others, in particular, a reduction in the standard rate of Income Tax. Everybody likes a reduction in the standard rate of Income Tax, but that is not the point. Supposing the Chancellor thought that in the interests of the country it would be better to give relief to industry in the form of increased investment allowances, supposing he thought it a good thing to give relief to the consumer and housewife in reducing Purchase Tax? No. According to the Economist the right hon. Gentleman has

to think of foreign opinion, of speculative opinion. This is what it says:
Many foreigners…envisage the English as a people whose sense of initiative and responsibility is hopelessly downtrodden by some of the highest marginal rates of Income Tax in the world;

Hon. Members: Hear, hear.

Mr. Gaitskell: I know that hon. Members opposite may think this, too, despite their Government.
they also believe that if a substantial reduction in Income Tax rates were made now, any incoming Labour Government would find it politically difficult to raise rates quite back to their old level, so that this would remove one of the main weapons through which a Labour Government might carry on a form of administration which foreign holders of our currency particularly dislike.
I will only say that we on this side of the House regard that kind of attitude as quite intolerable and the policies which put us in that position as unworthy of any Government who claim to be a democratic Government.
I will give one other quotation, if I may, which I think puts the matter very well indeed. It is by the Economic Editor of the Observer. He, as the House knows, was opposed to what the Government had done. He said:
At the same time, the Government could have used the opportunity presented in 1958 to make a start on reducing our international commitments—the present unlimited liability of sterling, which makes us so nervous about economic expansion at home. But instead, the decision has now been made to go forward with a policy of dismantling our defences and increasing our risks. With a gold reserve as small as ours, and the normal hazards of international speculative movements, it is not a prospect which I find enlivening. But it is the political implication of the policy of abolishing exchange control altogether which urgently requires discussion. If it goes through it will restore the power enjoyed by a minority of rich men in the past to vote with their bank balances.
I have given reasons why we believe these decisions to be wrong and dangerous. I do not propose to reply to the childish jeer of the Prime Minister, that anybody who gives warnings must be called "Calamity this or that". I am surprised, indeed, that the Prime Minister, who at one time liked to be associated with the right hon. Member for Woodford (Sir W. Churchill)—who gave the gravest warnings of this century—should be against those who think it necessary to give them today.
I must make it plain, as I did on an earlier occasion, that much as we disagree with this decision, since the decision has been made we should have to do our best to work it. But, at the same time, I declare that precisely because of the greater vulnerability which springs from what has already been done we are absolutely opposed to any further measure of decontrol in this field. We shall take the strongest measures open to us against any British citizens who, in pursuit of their business interests, choose to try to evade control and speculate against the £, for, important as may be the international business of the City, we do not intend to allow it to jeopardise the jobs and livelihood of the British people and the steady expansion of our industry.

5.26 p.m.

Sir Toby Low: The House has just listened to the Leader of the Opposition enjoying himself and pleasing his supporters. In fact, he pleased them so much that it is rather difficult for me to be heard at the moment.
I will come, if I may, to the right hon. Gentleman's points in the course of my speech, but I wish, first, to say to my right hon. Friend the Chancellor of the Exchequer that we on this side of the House, and I think all hon. Members of the House, are extremely grateful to him for the very lucid way in which he explained not only the Bill but the policies that have led to it.
As my right hon. Friend sat down, I wondered what the right hon. Gentleman the Leader of the Opposition was going to be able to say in support of his Amendment. When the right hon. Gentleman sat down I really could not see that he had spoken strictly to his Amendment. I expected him to explain to us exactly how the Bill and the policies behind it made more difficult the achievement and maintenance in Great Britain and Western Europe of industrial expansion and full employment. That is the great point of it. [HON. MEMBERS: "Hear, hear."] Hon. Members opposite may have views about this matter and we on this side of the House would like to debate those views with them, but so far right hon. Gentlemen on the Opposition Front Bench have not explained them.
It is quite true that the right hon. Gentleman explained why it was that he regretted the demise of E.P.U. We are all aware of the reasons for his sentimental attachment to this child which, I think, at the time when he helped to give birth to it was supposed to have a life of two years. It has enjoyed a life of eight and a half years. It seemed on that point that the right hon. Gentleman was particularly bothered and worried. I think this was a valid point on his part, that insufficient credit would be available to keep trade in Europe going at the maximum and to lead to further expansion of that trade.
The right hon. Gentleman expressed a strong affection for the automatic credit provisions in agreements such as this. It seems to me that in the absence of this agreement everything depends on the general availability of international credit and the general readiness of creditor countries to give credit. If we have not got that E.P.U. agreement, I do not see that we need at once assume that there will be too little credit available in the world.
I have a few more later points to make about the international credit position. I now turn to the right hon. Gentleman's strictures on the decision to go more convertible than we have been in the past.
It seems that these strictures were founded on the right hon. Gentleman's fear of the future. He spent a great deal of his time explaining to the House and the world that our position was much worse than it looks and that we had much less chance than we thought of riding out any storms which might occur in the world. He seemed to me to display a great lack of confidence not only in the people of this country but in his ability to govern the country if ever he had to do so.
There are many technical and detailed arguments which can be adduced in reply to the points which he made, and I imagine that my right hon. Friend the Paymaster-General will deal with them in reply to the debate. If I attempted to do so I should try hard the patience of the House. Hon. Members have listened to two rather lengthy speeches—I do not charge anyone with that—and when the House has heard two long speeches, it certainly does not want a third. I am very conscious of that.
There are three main points which I should like to make, and the first concerns the attitude of the Opposition not only here but in the country to the problem of sterling and trade. The right hon. Gentleman said that he accepts this decision and will work it, but his attitude has been that it would have been much better if it had not been made, because then we could keep the transferable rate separate in Zurich; and he contemplated conditions arising in which we should withdraw support from that rate, let in commodity shunting and permit to follow all the bad results of the loss of confidence in sterling which must inevitably arise from such an occurrence as that.
That is a remarkable statement to make at any time, but to make it after the Chancellor had described our experience in managing this transferable rate in the last two or three years seemed to be flying in the fact of the facts. The whole basis of the right hon. Gentleman's argument is a curious commentary by a responsible member of the Opposition on the merits of their own economic policy. I think the explanation is to be found in the "sixpenny glossy" published by the Labour Party, which I think we ought always to have in mind when dealing with statements by Opposition leaders on economic and other policies in the House, because they sometimes make one statement in the House and a slightly different statement to the people in the country.

Mr. Walter Monslow: "Mend the hole in your purse".

Sir T. Low: I am referring to the sixpenny document produced by the Labour Party. Under the heading "Expansion," I read that there are three important things which matter in our economic life. First,
We shall end Tory restrictions on production.
I understand that that is to be done by controlled expansion; we end restriction by control. I speak on the authority of letters written to the Economist by the right hon. Member for Huyton (Mr. H. Wilson).

Mr. H. Wilson: Would the hon. Member tell me when I have ever said that we should end restrictions by controls?

Sir T. Low: This document says,
We shall end Tory restrictions on production.
In writing to the Economist and other newspapers the right hon. Gentleman recently has explained that his whole policy of expansion depends upon controls. I can only put two and two together, because I have always assumed that the right hon. Gentleman had something to do with writing this document.
The second statement is,
We shall launch a plan for capital investment…
They have to get the savings to finance it, of course, but that is their second point. The third point—and it should be borne in mind that it is the third—is,
Labour is pledged to maintain the value of the £
—that is number three in the list of priorities, but it continues, significantly—
and to keep Britain the financial centre of the Commonwealth and the sterling area.
Today, far from keeping Britain the financial centre of the Commonwealth and the sterling area, they are complaining that the transactions of the transferable rate have been brought from Zurich to Britain. It may seem a small point but it is to me just one example of the many inconsistencies which there are between the arguments produced from the Opposition Front Bench in debate, when they are open to counter-argument and question in the House, and the arguments which they deploy in the country to people whom they think are unsuspecting and not capable of plumbing the depths of their nonsense.
The second point I want to make concerns the gains to be derived from this move. I agree with the Chancellor that it is only a small move and that in fact it makes no significant difference at all. That is the line I take.
I quite see, as the right hon. Gentleman said, that one could reasonably take another line, but as a result of experience in handling the transferable rate, I consider that this move is far more symbolic than important in the changes which it makes in the risks which we run. It brings to London from Zurich the handling of these transactions. More important, I think, is that it was a move taken in concert with the leading Western European nations and a move taken at


a time when there were differences on trade matters, particularly on the Free Trade Area. That is a positive gain.
There is another gain, too. At the time when this move of convertibility was taken, the mark, the franc and other currencies also went convertible, and that is surely a great advantage. Lastly— and this comes from my experience at the Board of Trade as well as my experience in industry and banking—I think that any move taken at any time along the path to a wider and freer system of trade and payments is a good move, particularly if it is taken in concert with our European friends.
It is those definite, positive gains which make the move attractive to me. I regard them as greatly outweighing any increase of risk. In an article which the right hon. Gentleman did not quote, the Economist called this "An act of bravery". I regard it much more as an act of faith in the expansion of our economy on a sound basis without inflation. The trouble about the right hon. Gentleman the Leader of the Opposition is that he has not this faith.
There is no doubt that the position last Christmas was very different from that which the right hon. Member for Bishop Auckland (Mr. Dalton) faced when he made his ill-starred move to convertibility in 1947. It is also different from the position at any time, except for a very short time, in the interim period. I do not think that the difference depends so much on the improvement in the relations of our reserves to our liabilities, although there has been that improvement, as the Chancellor said, nor is there any great improvement in the relation of our reserves to trade, as the Leader of the Opposition said, but I think the House is wise to take account of the whole position and not just the position of our reserves.
First, the balance of trade has been going much better, and one must not dismiss as wholly irrelevant the fact that in the last seven years we have earned overseas over £1,500 million more than we have spent. That is a very remarkable achievement which has enabled us to invest more, particularly in the Commonwealth. That has immeasurably strengthened our position in a way which is not reflected directly in the reserves.
That, of course—and I must make this comment, although hon. Members opposite will not like it—is a very different position from that reigning in the years between 1946 and 1951, when, far from earning more than we spent, we spent £800 million more than we earned. There were reasons for it. [HON. MEMBERS: "Ah."] I have never denied that there were some reasons for it, but I ask hon. Members opposite to admit that that is a great difference between those two positions and to give credit to the country and to the Government who have been responsible, at least in part, for that difference

Mr. Austen Albu: If that was the case and in view of the fact that we had a substantial balance also in 1957, why did not the rest of the world, and particularly the rest of the world's bankers, recognise it, and why was there a run on sterling in 1957?

Sir T. Low: I wish that the hon. Member would be a little more patient with me. He and I worked together in many things. I was coming to that, the second great difference.
The world now thinks that we have checked inflation and are continuing to check it. I regret to say that even in the days when I was a member of the Government, the world was not of that opinion throughout that period. This is an important change. I beseech the Leader of the Opposition and hon. Members opposite not to make the mistake' of accusing other countries of being solely responsible for the crisis of 1957. That is a misreading of the position. It is true that there was a flight to the mark, but previously there had been near-flight from gilt-edged in London. There was a great weakening of gilt-edged and it was known that there was an overstrain upon our resources. One of the indicators of that is the number of vacancies compared with the number of unemployed. There were other indicators too. Do not, however, let us think that it was somebody else's fault. If whenever we get into difficulties in economic affairs we go on thinking that it is the other man's fault, we will never be able to get a sound expansion. That is a mistake into which the Leader of the Opposition fell today.
My last point is to take up the phrase of my right hon. Friend the Chancellor


of the Exchequer about the closed economy. I had expected the Leader of the Opposition to use the argument that any greater freedom in currency and payments generally, however small, would deprive us of the power to take unsound, uneconomic measures at home temporarily to boost production or employment. I had expected that he would use those arguments, for that, I believe, is what a great many of his supporters think.
It would be very nice if it were possible for any Government in this country to get away with that, even for a short time—at least, it would seem to be nice, perhaps, for those who might be handling our affairs. Surely, however, experience has proved, particularly on a great many occasions since the war, that that simply is not true.
Whether for defence reasons, as the Leader of the Opposition had to deal with in 1951, or for general economic reasons, if we allow too great a strain on our resources to grow here we get into trouble very quickly. The right hon. Gentleman knows perfectly well how quickly we got into trouble in 1951. We got into trouble on earlier occasions even than that and there have been other occasions subsequently.
We live by overseas trade. We might sometimes remember that although we have to sell in order to pay for what we buy, in the process of production we have to buy the raw materials first before we make to sell. For that reason, it is important that our money which we pay to the producers of raw materials should be money widely acceptable throughout the world. That is an important point which sometimes is overlooked.
If, however, I am right in saying that the overseas position governs us because we have to sell overseas, surely it is clear that we are to some extent limited in our rate of expansion by the rate of expansion of world trade or that part of it which we can capture overseas. That is a fact. What happened in 1954 and 1955 was an example of how that works upon us. If we do not expand our exports as we expand our production at home we get into trouble.
Now, we have a different situation. World trade has come down; we hope

that it will begin to come up generally everywhere. I am glad that in all their measures the Government have wisely given the first priority to getting world trade going again and helping our exporters. That is the sensible way to do these things. My only comment on that—and I regard it as a fair one—is that measures like the increase in the contributions to the International Monetary Fund, very important in themselves, seem to have taken many months to mature. I have not yet seen signs of the effect of an increase of international credit in increased world trade. I am not accusing anybody here of having gone slow over this, because I know the urgency that my right hon. Friend the Chancellor of the Exchequer and his colleagues have put into this matter. Surely, however, the lessons of previous occasions like this and of the past few months are that all measures to try to get trade going again take longer to work than one thinks. I hope that there will be great urgency in the injection of credit into the international trade system.
Those are the three points I wanted to make. I attach the most importance to the phrase by my right hon. Friend the Chancellor that we cannot consider our economy as a closed economy. Everything depends on what is happening outside. It may be a nasty thing to have to admit that the other man's view about us matters, but if we live by selling and by buying his goods, I am afraid that it is true.

5.47 p.m.

Mr. Harold Lever: It is a relief that the right hon. Member for Blackpool, North (Sir T. Low) has narrowed down somewhat the criticism of my right hon. Friend the Leader of the Opposition. Apparently, my right hon. Friend's guilt is an evangelical deficiency or a lack of faith, as the right hon. Member put it. That puts me in mind of the story, which I have related before, of the gentleman who had the misfortune to come home and discover his wife in the very act of adultery. When he rebuked her she turned upon him and said, "Ah, I see you do not love me any more. You prefer the evidence of your own eyes to my assurances." My right hon. Friend is probably guilty of the same offence in that he prefers to look


at the facts rather than to be persuaded by the emotional appeal of the right hon. Member for Blackpool, North.
The case made by my right hon. Friend the Leader of the Opposition against the actions in recent years in dealing with sterling meets with my overwhelming agreement, but I have certain views supplemental to it which I would like to link with what my right hon. Friend has said. In the first place, I feel that there has been a tendency during the years I have been in this House for the House to abdicate some of its judgment in favour of experts on financial subjects and that as a result the theoretical economists, without political or practical experience, and the bankers have been allowed, under the shield of a technical jargon not understood by most people, to put over ideas which have proved costly to the country.
It is when the House insists upon examining these things in the ordinary light of commonsense and plain English that we have a chance of a wider range of informed opinion than that of the experts being brought to bear upon these vital problems. It is for this reason that I make no apology that my speech will contain few statistics and a great deal of plain English and readily comprehensible argument. I must say that it is rather swimming against the tide, because, as I pointed out to the House before, British people always believe that when a policy involves some considerable discomfort it is bound to be to their enduring benefit, and when it is couched in language that they cannot understand they naturally take it to be the product of great learning. The combination of the disagreeable and the incomprehensible has almost overwhelming attractions for the great majority of the British people. This fact explains why the economists and the bankers have been able to have such a field day at our expense in recent years, and it is in the interests of focussing the commonsense of the House and of informed opinion outside that I intervene in this debate.
The first question that hon. Members ought to ask is whether, other things being equal, convertibility in itself is a desirable objective for this country. In plain English, sterling balances and our currency in general, wherever it is held, are nothing more or less than the I.O.U., the

note of hand, of this country, or the marker, as I understand gamblers call it. Hon. Members who saw "Guys and Dolls" will remember that when a man's marker was accepted as absolutely unquestionably good, all sorts of desirable results were liable to flow from this fact. The hero was able to persuade Miss Simmons to pass an agreeable weekend in America because his marker was accepted as good.
In the case of a great trading and investing nation like our own, with worldwide interests, it is obvious that for our I.O.U. to be open to question is a very damaging matter. For it to be accepted unquestionably in all the markets and trading centres in the world must, other things being equal, be an immense advantage politically and economically to this country. So it follows that we would all wish that our I.O.U.s, or £ notes, or sterling balances, or sterling bonds, should circulate freely and should be accepted everywhere as being worth the amount stated upon them. We would much prefer that state of affairs to having them marketed at a discount in Zurich or Kuwait or in other financial centres which have never been highly regarded by contrast with the City of London.

Mr. C. R. Hobson: Profiteers in two world wars.

Mr. Lever: All other things being equal, we would welcome free convertibility of our currency in the hands of foreigners. That is why my right hon. Friend emphasised again that that is a target at which we on this side of the He-use aim.
There are quite respectable, ingenious and highly educated gentlemen who urge upon us that we ought to think in terms of the floating £. I am bound to say that there are many objections to the idea of having currency which fluctuates according to the temporary movements of the market from day to day during the year. It is fairly obvious that when we give out notes of hand and when we trade, if those notes of hand are going to fluctuate in real value according to the state of the Zurich auction or according to the speculative movement of currency, our trade is not going to be on a very guaranteed or stable basis. So the floating £ does not seem terribly attractive.
I am sorry if I appear to be guilty of a minor heresy; I hope that it was not an implication of part of my right hon. Friend's speech that the floating £ is in some sense a protection against speculation. As a matter of fact it is precisely upon the variability of the value of the currency that speculators batten. It is only when a thing goes up and down that we get these great speculative movements in currency. The negation of speculation in currency is a hard, fixed parity value which people can depend upon, and when one can depend upon parity speculators have got nothing to speculate about.
There is a possibility, which I must hold for later discussion, that with a fixed rate guarantee to a holder of sterling he could speculate on the possibility that the Government will no longer be able to hold a fixed rate. But all the history in the post-war years is that non-convertibility of sterling as such and the wavering of sterling and other currencies, far from being a shield against speculation, is the direct opposite. As my right hon. Friend carefully illustrated, these speculative movements have occurred from time to time since 1945, in spite of the fact that we have been running a very considerable balance of foreign trade in our favour and a balance of payments in our favour, and in spite of the fact that we had no convertibility for foreign holders of sterling.

Mr. H. Wilson: I am sorry to interrupt my hon. Friend, but his reference to what my right hon. Friend said about floating rates might lead to some important misunderstanding outside. My right hon. Friend was referring purely to the cushioning effect of some freedom of the transferable rate to move up and down in the pre-convertibility period.

Mr. Lever: I was not suggesting that my right hon. Friend had said anything to the contrary, though I realise that his comments might have been open to misinterpretation. I am very glad to hear that both my right hon. Friend the Member for Huyton (Mr. H. Wilson), whom I hope to see shortly handling the conduct of our economic affairs in a much wiser manner than they have been, and my right hon. Friend the Member for Leeds, South (Mr. Gaitskell), whom I expect to occupy an even more responsible office in the near future, disavow these theories

of the floating £. Nothing could be more inimical to our prospects than that we should espouse these crackpot theories, as I regard them.

Viscount Hinchingbrooke: Would the hon. Gentleman define that theory in terms of the situation in 1931–39 when the £ was free and there were no trading cataclysms?

Mr. Lever: If I were to go back into the history of that period I am sure that I should soon be called to order. It is enough to say that the floating £ is no guarantee against speculation, rather that it tends to provide a feeding ground for it to grow upon. It is quite clear that even the floating areas—jthe mildly floating transferable sterling areas—did not discourage the speculative movement of sterling to a point when, in September, 1957, we were at a moment of grave crisis. It is quite clear that the non-convertibility that we have enjoyed up to this moment has not provided any sort of shield against the speculative movement of sterling.
There is very little information about where these speculative movements come from. We find leaderettes in the popular Press about the hard-faced men in Zurich, and the average Englishman thinks that the misfortunes which have been brought upon him by the speculative movements of sterling, movements even at a time of a favourable balance of trade which have produced the most disastrous economic policies, have been caused by a number of continental Billy Hills who are engaged in buying and selling sterling and generally having a gamble, rather as a man enjoys a gamble on the two o'clock race.
It is very hard to find statistical evidence about this, but nothing could be further from the truth. The overwhelming weight of the speculative movement of sterling, I suggest, comes from where the overwhelming weight of sterling is held—inside the sterling area. It comes largely in the form of lags and leads which are due to a state of flexibility in sentiment, and, of course, in fairness to the gentlemen who engage in what are total speculative movements of sterling, it is only right to say that they are not aware of themselves being gamblers, gambling on the fate of the £. still less as people contributing to an evil fate for the £. They are engaged in


their lawful avocations of buying and selling. Let me give an example of the kind of thing which produced the crisis in 1957.
An English trader buys goods from Germany, and has to pay in Deutsche-marks. He could get a fair amount of credit, but what does he do? He is afraid, if he takes credit, that, by the time he has to pay in Deutschemarks, sterling will have depreciated, and hence he will have to pay more in sterling for the goods he bought than he intended to do. So he rushes off, borrows money from the bank or from any other source, often at a high rate of interest, so that he can get rid of his Deutschemark obligation as soon as possible.
In fact, the speculative movement of sterling in large part derives from the desire not to speculate which the trader as a rule has. He does not want to be at risk of the Deutschemark later improving against sterling, so he has to hedge his risk by buying up Deutschemarks at the earliest possible moment. So we get the paradox that the sterling area is responsible for the great speculative movements of sterling, and the people who, in the aggregate, produce irresistible tidal waves of speculative movements of currency do it, not to gamble, as is popularly thought, but to evade the gamble on the currency rates.
I do not want to weary the House by showing how the reverse process works to delay the receipt of dollars or other hard currencies. Why the foreign holder of sterling moves his money about is because he wants to avoid the depreciation of sterling, except in the rather exceptional case of 1957 when he rather hoped for the appreciation of the Deutschemark, so that he put his money in a hurry into Deutschemarks.
The real truth, therefore, is that speculative movements of sterling, which have forced the hands of both a Labour and a Conservative Government and have dictated policies, are derived from the varying sentiment of the holders of sterling in the sterling area itself, rather than from the minor movements of speculative sterling held by foreigners. Most foreigners who hold sterling hold it for a purpose. They need it for trade, business or whatever it may be, and if they

hold it, they cannot as a rule afford to part with more than a small part of it at any given time.
Just as a trader can only reduce his stock within certain limits, so the foreign holder of sterling can only reduce his sterling holding within limits. Only a fraction of sterling is held outside the sterling area, and only a fraction of that fraction can be used speculatively, so that it is plain that this movement of sterling actuated from within the sterling area is the real cause of the speculative problem on which my right hon. Friend rightly laid so much emphasis.
It is also quite clear that the rate at which foreigners change their money does not greatly affect this speculative problem. It is very hard to get figures, but if we come to the conclusion on the lines I have indicated, the speculative movement of sterling within the sterling area, is unaffected by the question whether we make our transferable currency convertible by auction at Zurich or at a fixed market rate, as has been decided by the Government.
The final objection to the floating £ is this. We came to the conclusion immediately after the war that, because of the changed circumstances of our country, the only hope we had of military and political security was by agreement for collective security measures with like-minded nations. The sad thing is that a similar understanding that our economic and financial security can only be secured in the modern world by collective security measures has been much slower in emerging.
This country can no more "go it alone" on currency, economic and trade matters than she can on military or strategic matters. In other words, just as we see the hope for our political security in the wider development of collective security arrangements with like-minded nations, so the only hope of economic stability and safety in the long run lies in this country developing a kind of economic and financial collective security.
Just as we have no "Suez Group" in the Labour Party, and the other side, though not run by the Suez Group, has a very pronounced sentiment in that direction, it is not surprising that in economic affairs the Suez Group mentality prevails in the financial and economic fields more


on the other side of the House than it does on this. The urge to "go it alone", the urge co develop premature convertibility, has always been on the other side of the House rather than on this.
The urge to move towards convertibility, even if desirable in itself, as I have said and as my right hon. Friend said, backed by collective arrangements with like-minded nations which have vested interests similar to ours, has only been developed by my right hon. Friend and a Labour Government. In fact, the E.P.U.—and I will not go into a lot of technical matter here—compared in the circumstances of its inception with the Bill before us today, in today's circumstances and many years after the war, was a great advance in economic and financial thinking which developed trade by means which I am not going to repeat, because we have already had them accurately stated by my right hon. Friend the Leader of the Opposition, and was an unmitigated blessing to the trade of Europe and the stability of our currency. This Bill, compared with that, is a retrograde step.
One or two illustrations were given by my right hon. Friend. I will not go into the matter in great detail, because it is enough to say that, as the need to have collective arrangements for propping up of currencies and the development of international trade has shown, by contrast, the Measure now brought in by the Government weakens the collective arrangements for the support of each others' currencies in unconditional terms. This is a retrograde step, because it fails to develop E.P.U. into something larger, more comprehensive and more effective. The party opposite has gradually whittled away E.P.U., damaged its functions, and now proposes to wind it up, and replace it by an international arrangement far less comprehensive, far less effective and far less wide in its reach than E.P.U.
Therefore, I am very sorry to say, I cannot vote for the Bill. I do not welcome it, not because it is harmful in itself, not because I am opposed to convertibility, not because I do not want to see our currency freely convertible at its face value, but because a prerequisite of effective stable convertibility of our currency must be, not the whittling away of the international arrangements to support it,

but rather the development and extension of those arrangements as started by my right hon. Friend when he got E.P.U. going.
There is another question that I should like to mention. I do not altogether share to the full my right hon. Friend's apprehensions that, despite all the shortcomings of the Government, convertibility will fail. I agree with him that there are risks, but I am not sure by any means that those risks will prove fatal to convertibility, even though we had no need to take them. My charge against the Government is that had they taken the action open to them today we could have had convertibility without any risk at all and with complete unanimity between both parties in the House. As it is, with inadequate international preparation and with thoroughly disastrous home economic policies to suit, until very recently, there are some risks, but so slight as not to cause me, at any rate, great anxiety.
I should like an answer from the Minister on this point. It should surely have been possible to dispel those fears which some people have about convertibility if, for a trial period, the Government had supported the transferable rate at full parity with the official rate. If they had done that, we could have seen demonstrated in practice whether the strain upon the reserves would grow with transferable sterling supported at full parity. The Government's action now amounts only to the support of transferable sterling at full parity. Of course, they could have done that for a trial period in the last few months if they had had their wits about them. They have completely failed to do so, and now they have rushed in without adequate preparation.
I wish to know from the Minister, also, why we keep talking about the gold and dollar reserves in the same terms as the Bank of England. Why not disclose not only the Government holdings of dollar securities, but the privately held dollar securities? All those securities are registered with what are called "authorised depositaries". Nobody has the right to make off with them. Why on earth can we not have stated with our gold and dollar reserves the dollar securities held by residents in this country? Surely nobody in the House will deny that any Government in an emergency would be entitled to use those dollar securities as


readily as the gold and dollars we have in the reserves if it were necessary to defend the £.
Certainly, it would have been far preferable in 1957 to have sold a few hundred millions of dollar securities rather than cast away nearly 25 per cent. of the entire potential steel production of the country, as was done by the restrictive policies which the temporary run on the currency, so they claim, forced upon the Government.

Mr. Ellis Smith: We did it in the war.

Mr. Lever: As my hon. Friend says, we did it during the war. There is no reason why, in peace time, we should not have those securities lodged at the Bank of England as evidence of the firm intention of the Government to defend sterling at the declared rates.
My right hon. Friend very properly said that, in spite of our disagreements, we on this side are determined to do all in our power to defend the sterling rate. To show that this is not a dishonest or a hypocritical pretence, I for one demand that there should be a further strengthening of our reserves by the Bank of England taking into its possession and regularly publishing, with the other reserves, all the dollar securities held by residents in this country. It would certainly be reassuring to public opinion abroad to know that we meant business and meant to use all our resources to defend our currency.
Another reason why we cannot welcome unconditionally the convertibility move which otherwise we should have been glad to see is that the last financial crisis, in September, 1957, resulted in a policy which the Government are always claiming saved the £, restored our reserves and all the rest of it, but which, in fact, if it had any effect at all, had the very reverse effect. I will not reiterate what my right hon. Friend said. The Chairman of Barclays Bank made it quite plain that the Government's policy bad nothing whatever to do with the restoration of our reserves. This came about because we gained on the terms of trade swings without losing on the commodity roundabouts.
The sterling area, at the same time as it lost money on the drop in commodity

prices, which benefited our terms of trade, got an immense amount of dollar investment from outside the sterling area. We got it both ways. We had investment into the area where the prices were dropping, and we had advantageous terms of trade. Those factors, and not the Government's policy, resulted in the very modest improvement in our fortunes in that respect.
What sort of confidence can we have in a Government who support our currency by restricting our industries? We on this side are not prepared, at times of speculative crisis and temporary panic on the part of a half-comprehending Government, to accept for a moment their undermining of the very basis on which our currency must finally depend. In the end, coming back to what matters, the value of the notes of hand of this country will depend upon the skill, the effort, the social discipline and the industrial and economic achievements of our people.
All the rest is a kind of meaningless preparatory charade if, behind it, there does not run the organised economic and industrial effort of a great nation. The Government purport to strengthen our position by cutting steel production to about 75 per cent, of what it could be, by further stagnating the economy, and by general measures calculated to damage the long-term industrial and economic strength of the country. I shall not go into all that in detail; it is too well known.
The odd thing about this Government is that they are constantly knocking the economy about, yet, when they lay off doing that, they come to the House with fatuous smiles of self-congratulation, saying that they are actually making things a little better, after having half strangled the economy. The Prime Minister, to his eternal credit, extruded the right hon. Gentleman the Member for Monmouth (Mr. P. Thorneycroft) from his Cabinet. [An HON. MEMBER: "Where is he?"] The right hon. Gentleman who had charge of our financial and economic affairs no longer has the ear of the Prime Minister and his colleagues. As hon. Members must be aware, the right hon. Gentleman the Member for Monmouth accepted the infantile economic and financial theories which largely guided the Conservative Party in its normal mood, and he actually


had the temerity to attempt to give full practical effect to those policies.
In all fairness to him and his colleagues, I will say I respect their great sincerity, but the Prime Minister, faced with the practical consequences of giving effect to these policies, cast the right hon. Gentleman the Member for Monmouth on to the back benches of the House of Commons and was even more severe with his economic adviser, whom he cast on to the red seats in another place. I think that we can now safely suppose that both will, perhaps, be prevented from taking part in economic debates in which their counsel might have been heard.
When we note the reaction of the Government to the crisis of 1957 and previous crises, we are bound to come to the conclusion that we cannot support them in any convertibility move of this kind, for two reasons. To be absolutely safe, convertibility requires two things: first, the development of our whole economy to its maximum strength and on an expanding basis; secondly, adequate international arrangements for what I call collective economic and financial security. On both these counts the Government fail. In home affairs, at the first sign of the squall, their reaction is of a destructive character. Tight lacing, which has long since been abandoned for controlling the female figure, is much in vogue in the minds of Tory economists at the first sign of any trouble in the economy. Their natural reaction is to contract, and it must be said that the further move towards convertibility is not to be entrusted to the hands of people with that attitude.
I have explained that I am bitterly opposed to the economic approach of the Government. I have explained that, for my part, I should unreservedly welcome a £ restored to its pre-war strength, freely convertible in the hands of foreigners, of non-sterling area residents, at a fixed parity, were it not for the fact that the Government have not made the necessary arrangements externally to deal with what might occur and have not shown the approach internally which is required for the strengthening of the economy.
I hope that I have made it plain that I. have no confidence in the Government in the handling of either our internal financial affairs or our external financial affairs. I agree with what the right hon. Gentleman said about the years since the

war. We can see running through the post-war years, and through the way in which this country has tackled its peacetime problems, the same thread of British character, talent and courage which, we know, enabled us to survive the trials and difficulties of the war. None of us here attributes that solely to Labour Party ideas, still less to what the party opposite has done. We attribute it to the people, of all parties and all kinds, who have contributed to this immense effort.
Not the least of our economic assets in the battle to improve our financial and economic position in the very difficult post-war world into which we have been catapulted by a war which drastically changed the economic situation has been the fact that the country has a trade union movement which is more responsible, more patriotic and more intelligent than any comparable working class in the world. The trade union movement is deeply patriotic and deeply conscious of its social responsibilities. Without wishing to make a party point, if one had to pick one sector to which special tribute is due it would be the trade union movement.
It is right that we should proclaim to the world, however bitterly we may disagree about the timing of different steps and the correctness of different policies, that we are all agreed that in a matter which touches the safety and honour of our country, the value of our currency, whatever Government is in power, we will all, irrespective of party, lend every possible help in order to keep our famous and successful trading name as valiant and honourable in peace as it was during the war.

6.23 p.m.

Mr. Nigel Birch: There was a moment during the speech of the hon. Member for Manchester, Cheetham (Mr. H. Lever) when I thought that he would try to talk the Bill out. However, that moment passed. I will not follow him in all the highways and byways of his speech, because many hon. Members wish to speak. I want to deal with only one part of his speech, the question of speculation.
The word "speculation" came as a sort of leit-motiv all the way through the speech of the Leader of the Opposition. It is dangerous to put too much weight


on the question of speculation. It leads people to underestimate the scope and nature of our problems. It leads people to feel that they have no moral responsibility for the easily foreseeable consequences of their own actions. It has already led hon. Members opposite to the idea that as all difficulties are caused by speculation it is possible that by controls or by having some debased form of sterling, by paying in clipped coinage, one can avoid the easily foreseeable consequences of one's own actions.
There always has been and always will be speculation. We hear a great deal about Zurich. No doubt speculation will go on there and the speculators are outside the jurisdiction, but, as the hon. Member said, that sort of speculation is a very small matter indeed relatively to the really big movements of funds. We cannot calculate these things, but I have always found that those in the best position to know, such as officials and bankers, believe that speculation in the strict sense of the word—that is to say, people who sell sterling which they do not own and to which they have no future title, in the hope of making an uncovenanted gain —is relatively unimportant.
That sort of thing has never been an important factor in any of the runs on sterling. The important movements have been on the part of those who do not want to put the assets of a business at hazard, the people who do not want to make uncovenanted gain but do not want to make uncovenanted losses—people who do not want to speculate.
We have heard about leads and lags. Let me take leads first. Let us consider two traders buying goods of the same value in America. Take the date as 1st August, 1949. The goods were ordered earlier. The goods are due to be paid for, let us say, on 1st November. Confidence in sterling weakens. No relevant action is taken and it is clear that no relevant action will be taken to put things right. What are the traders to do? One man may say, "I will scrape up the money somehow. I will borrow it. It will cost me more, but that will be only an insurance premium. I will pay my debt". The other trader may say, "No, I will not do that. I will risk it".
The first trader gets his goods at the price which he anticipated plus a small insurance premium. The second who took a risk loses 40 per cent. Which of those two men was the speculator? That is not an easy question to answer, but that sort of thing was going on all over the sterling area.
What are the means of control? I suppose that an order could be brought in to the effect that no British trader should ever pay his debts until the last possible moment, but that would not be a very easy order to enforce. To fly signals of distress like that would immediately cause panic. In the rest of sterling area the means of control will be none whatsoever.
Now let me deal with lags. Let us suppose that a trader in America who is buying goods in this country thinks that sterling will be devalued. If it were devalued the goods would fall in price. Anyone who buys goods after devaluation will undercut him. What will he do? Obviously, he will try to put off payment until the last possible moment. He may very well make it a condition of the purchase of the goods that payment is to be deferred. That happens all over the world. In this case, there are no means of control. What happens in the banking business? Countries all over the world keep working balances here. If they feel that sterling will be devalued they will run them down. There are no means of control short of a declaration of national bankruptcy.
Take the members of the sterling area who keep their reserves here; not all of them are members of the Commonwealth, and most of them are much poorer than we. If they think that the value of their reserves will go down because sterling will depreciate, for old times' sake they will probably leave their deposits here, but will be under the most bitter political pressure at home—and this has happened often before—not to put any more in but to form their own gold and dollar reserves. Here again, there are no means of control whatever.
Some of the means of control that can be exercised are ambivalent in their effects. The Kuwait gap, about which we hear so much, was closed on 5th July, 1957, about six weeks before the run on sterling started. As a result of closing the gap the premium on dollar


securities in this country went up at one time to 25 per cent. This was a demonstration of lack of confidence in sterling. That was one of the things which triggered off the panic. If the gap had been closed earlier, I think that it is quite likely that the panic would have started earlier.
Panics cannot be stopped by changes in the terms of trade. I think that Mr. Tuke has been slightly unfairly quoted. The terms of trade in August, 1957, when there was the run on the £, was only a point less favourable than it was in November the same year, when money was flowing in. What stopped the money flowing out was honest and resolute action and the determination to see the thing through. As soon as the world decided that we meant business, then the leads and lags stopped, the working balances came back, and nobody wanted to put his money through the Kuwait gap anyway.
It is rather odd that right hon. and hon. Gentlemen opposite should put it to the country that the foreseeable consequences of their actions can be avoided by controls, and by having debased forms of currency. After all, they have had some experience of controls. In 1949, there was every sort of control. A docile majority opposite would have passed any control that Sir Stafford Cripps had wanted, and at that time it was said that there were no less than 57 varieties of sterling. What did it avail? Nothing whatever. A great devaluation took place.
In 1951, when there was another run on sterling, was the Leader of the Opposition short of controls or debased forms of currency? Not a bit of it. What he lacked was the courage and resolution to do unpopular things and, very rightly, threw in his hand and went. We got in, took some resolute action and the thing came right—[Interruption.]Of course it did. The right hon. Gentleman the Leader of the Opposition was heading for a second devaluation, and would have had it if he had stayed in office—

Mr. John Cronin: rose—

Mr. Birch: No; I do not want to give way.
There is a good deal of danger in the attitude of hon. Members opposite that things can be put right by controls, and there is great danger in this hankering after debased forms of sterling. What is in their programme? Cheaper money—the re-Daltonisation of our economy, re-nationalisation of steel and road transport—adding hundreds of millions to the debt, and adding enormous sums which we would have to raise each year by the sale of gilt-edged securities. A vast increase in the debt would be caused by the municipalisation of rented property—there is great proposed increase in every item of expenditure, plus help to underdeveloped countries on a greatly increased scale. We are told that there is to be no general increase in the level of taxation, and that all this is simply to be paid for by running the economy flat out—a policy pursued by the French since the war at the cost of eight devaluations since VE-day, six of them before the Algerian War started.
This programme has certain foreseeable consequences, but hon. Members opposite say, "It is quite all right, because we shall have exchange control." But if they have a mysterious, wonderful, new exchange control which can control all the things they could not control before, and which no one else has ever been able to control before, I think that they are under some obligation to tell us what those controls are. If they do not say what they are, they will do themselves harm, and they will do the country harm. On top, of that, this hankering after debased sterling is bad.
I see the difficulties of hon. Members opposite. Socialism, after all, is intellectually and morally discredited now. How ever, as an Opposition they feel that it is their duty to oppose, and when some thing like this is done they come here and make ridiculous statements like those we heard from the Leader of the Opposition—

Mr. Sydney Silverman: Will the right hon. Gentleman give way?

Mr. Birch: No.
Nevertheless, it does harm. They had better stick to their own nonsense. What I say to them is, "Leave the £ alone, and stick to your labels."

6.34 p.m.

Mr. J. Grimond: The right hon. Gentleman the Member for Flint, West (Mr. Birch) is a most effective debater, but I must say that there are certain points that could be made against him. He says that the Conservative Government put everything right, but what happened about eighteen months ago? What happened a year ago? The right hon. Gentleman then took the view that so serious was the outlook that he had to resign from the Government.
What is the position today? We may be able to take this step towards convertibility, but the fact remains that we have a high degree of unemployment, and stagnation in industry. I have a great deal of sympathy with what the right hon. Gentleman said about inflation and controls, but that is something that we have had ever since the war. We have swung from bouts of inflation, with foreign difficulties, back to stagnation and a strong £.
I should like to start from the same point as did the right hon. Gentleman on the question of controls and speculation. Unlike him, I must say that, although I disagreed with the conclusions of the right hon. Gentleman the Leader of the Opposition, I was considerably impressed by his speech. I thought that he made the case against this move very cogently but, in the end, he came to this: that in this year—which is one rather charged with political possibilities—or later there might arise an occasion when there was another lack of confidence in sterling, when it would be seen that this Bill was a step in the wrong direction.
There, I think, his case broke down, because if he really thinks that he can stop the consequences of such a lack of confidence in sterling, he must take very much more drastic powers than existed before the Bill was introduced at all and, so far as withdrawals of money from this country are concerned, I share the view of the right hon. Gentleman the Member for Blackpool, North (Sir T. Low) that the Bill will not make much difference. We must make up our minds either to go for an economy much more closely controlled than anything we have had, or we must accept the Bill as at least a small step in the direction of freer trade in the world and freer movement of currency.
Both sides have said we should do that—

Viscount Hinchingbrooke: In which does the hon. Gentleman believe?

Mr. Grimond: We believe in the second. The noble Lord must really make an effort to listen. I said that there are two alternative views before the House, and that those who did not want to accept the Bill—as I do—would have to turn to very much more stringent controls than we have ever had before.
I think that the Chancellor should have told us rather more clearly whether or not he considers this step to be an important matter, because I understood the right hon. Member for Blackpool, North to say that he thought that this was a very unimportant little step. If it is a very unimportant little step, I think that the Chancellor has to meet some of the arguments advanced by the Leader of the Opposition for thinking that it might not be so unimportant as it appeared at first sight.
The right hon. Member for Blackpool, North said that he regarded this Measure as being important mainly in the realms of faith—that it is an act of faith. The right hon. Gentleman is a banker, a distinguished banker, but I must say that I hope he does not run his bank on faith. The Government surely regard this Bill as more than a gesture—a symbol of faith. There is also the question whether or not the Government intend to go further. I think that they would be quite entitled to say that they must go further but, if that be the case, we should be told what further steps they have in mind.
I then come to the consideration of what steps might be taken if they run into the sort of difficulties which I think are certainly not beyond the range of possibility. At the present, we have the need to expand production at home. The Government are taking certain steps, such as lowering the Bank Rate and encouraging hire purchase, to step up consumption.
The Leader of the Opposition advanced as his main objection to the Bill that, in his opinion, it was one step in a series of disinflationary or deflationary steps, not only here but in Europe, and he doubted whether this was the right


time for it. That is an important question, and the Government should tell us whether it is now their view that we have sufficient stability at home to loosen things up; to absorb a certain amount of extra purchasing power; to do little more investment; to get things going again, and whether that can be safely done in the context of convertibility. I also think it would be useful to know whether they are playing this by ear, and feeling their way, or whether they have any targets at which they are more definitely aiming.
Then I do not think it can be denied that, whether this is a small step or a big step, we may well be faced again with a situation in which people outside this country prefer to hold some other currency than sterling, and to withdraw their balances from this country. The advantage, as I see it, of making this move at the present time is that it is being coordinated with moves in other European countries, so that we shall not be left in the position that sterling is unprotected while other European countries have a high fence round them. Nevertheless, since 40 per cent, of the world's trade is done in sterling, it is obviously a much more serious matter for us if there is a preference for other currencies than it is for the other countries concerned.
I, therefore, if I may say so to the noble Lord, feel that the Chancellor of the Exchequer, if I may so put it, is trying to fly with the angels in this matter. He is flying in the right direction. He deserves a small halo. The question is, are his wings strong enough? Is he going to keep up? I think that that is the question to which we have to address ourselves. What do we do if we do run into the sort of difficulties we have experienced often since the war and which, clearly, are not impossible again.
One of the most popular methods, of course, is to raise interest rates. Doubt has been thrown upon the efficacy of interest rates, and some people are beginning to feel that we can pay too high a price for establishing confidence in the currency by raising interest rates. Still, this is an important weapon in the Chancellor's armoury.
There is the possibility of controlling imports and trying to regulate our balance of trade in that way. I myself regard it

as undesirable on political grounds and as probably not very effective on economic grounds. It takes time, it leads to retaliation, and altogether I do not think it is a satisfactory way out of the difficulty.
Then there is the question of a floating rate. I am not quite certain about this, and I should like to ask the Government, is a floating rate incompatible with our international obligations? Would it be possible to have a floating rate and yet have the degree of convertibility to which the Bill points? If it were possible to have that I should have thought there was a good deal to be said for having a floating rate.
However, what I do feel with some certainty is that if the Bill is to be a success and we are really going to try to defend sterling as a more and more freely convertible currency, we certainly have to put our house in order at home.
For one thing, we have got to continue to earn a very large surplus on current account. I think that when the right hon. Gentleman winds up the debate he might confirm that it is the Government's view that we do require a much larger surplus on current account than we have been accustomed to earn in some years recently. It has been pointed out that very considerable obligations are to be met out of our reserves. In addition to the figures given by the Leader of the Labour Party I think there is also due a considerable repayment to E.P.U. at the rate of 36 million dollars a year.
We shall also have to keep down Government expenditure. Although it may seem remote from this Bill, I would press the Government to have a look at the financing of the nationalised industries. I think that this is a perpetual, incipient source of inflation in this country. If we are to be satisfied that we can defend sterling it seems to me that we must examine both Government expenditure and the financing of these industries.
Lastly, there are the longer term considerations. We all say and we read that Russia and China will make immense economic efforts and that they can do so because they are dictatorships, because they have vast resources, and because their deficiencies can be mopped up by their dictatorial powers. I do not know


whether this is true, but I believe that the rest of the world has got to consider the matter very seriously indeed, and that one of the most disheartening things about the Western world is its inability to manage its foreign trade and financial affairs without perpetual monetary crises. It happens in all countries; I do not think it is confined to this country. We have a Committee going into financial matters, but I do not think it is empowered to look into these wider aspects of finance.
I believe that this is certainly a question to which the Western world must give very great consideration. Can we find a different basis for our currencies? Has the time come when we have to put up the price of gold? There is a widespread feeling that the dollar, after all, may become a comparatively soft currency. I know that this opinion is open to criticism in the view of some people, but it does look as though American costs now may be dangerously higher than those of the rest of the world. I myself believe that the refusal of the electricity tender to this country shows how very far out of line our costs are. That may well lead to trouble.
Are we satisfied with the steps which have been taken to strengthen the I.M.F., and, indeed, the steps which are being taken to set up this new European fund? As I understand it, the Fund is only of 600 million dollars, which, I must say, seems a small fund to be a stabilisation fund for the European currencies. If my figures are right the total extra quota of the I.M.F. from this country in gold and sterling is some £240 million, which, no doubt, is as much as this country can afford. However, do the Government really think we have sufficient liquidity now to carry the amount of Western trade which is being carried on and also to back the expansion of that trade? Are we in the West really going to be able to back the full use of our resources of both machines and men so as to keep up with the enormous expansion behind the Iron Curtain?
I do not think we have given nearly enough attention to the longer term implications of our financial policies.* I support the Bill but I would ask the Government to let us know rather more of the steps they are taking to guard against the possible difficulties we may

face in the future if the Bill is passed, and what their views are about the longer term need to increase international liquidity.

6.47 p.m.

Sir Henry d'Avigdor-Goldsmid: It is always a pleasure to follow the hon. Member for Orkney and Shetland (Mr. Grimond), and particularly is it a pleasure to follow him on this occasion as I understand that his views will lead him into the Government Lobby. I must say that, perhaps like other hon. Members, I was left in considerable doubt, until his concluding sentence, in which direction he was proposing to go. I am very glad to think that he will come with us, and, perhaps, his followers will come, too.
I had rather dreaded this debate, Mr. Speaker, because, although I appreciate very greatly the honour you have done me in calling me, I felt hanging over me the fear that I should have to cite the events of 1947 against my right hon. Friends. I was then a very humble worker in the City of London, but I did see the disastrous effects of the premature convertibility in which we were involved in that year in terms of the American loan, and it made an impression on me which made me feel that if ever I should be fortunate enough to speak here I should be extremely nervous about advocating repeating that experiment. It is good to think that now, after one month of this experiment, many of my fears have been relieved.
I do not know whether hon. Members realise that we enjoyed convertibility for exactly thirty working days, from 15th July until 20th August, 1947. During that time our drawings and expenditure on dollars were 1,300 million dollars. In addition to that we had to sell £20 million of sterling out of our gold reserves, immediately after convertibility had been withdrawn, so that the total cost became almost astronomical.
Some of the consequences which the House and the people of this country had to face were announced by the right hon. Member for Bishop Auckland (Mr. Dalton). The meat ration was reduced from 1s. 2d. to 1s. a week, the tea ration remained at 2 oz. a week, there was no currency allotment for pleasure travelling abroad, and the basic petrol ration was totally abolished. These are the things which happened eleven years ago. They


seem to be completely forgotten but they have left a very deep recollection with me, and I might describe myself as working at the time as a clinical assistant in the hospital where the patient was being operated upon and was having this enormous loss of blood.
I have always felt, therefore, that premature convertibility was the greatest disaster in which this country could be involved. Why is it that now one can feel confident that the move to convertibility is not premature? In the first place, and I attach the greatest importance to this, it is a step that we have not taken alone. Despite the remarks of the hon. Member for Manchester, Cheetham (Mr. H. Lever) this is exactly a case where we have not gone it alone.

Mr. H. Lever: I never said so.

Sir H. d'Avigdor-Goldsmid: No fewer than eleven other European nations have taken the step with us. In the 1947 crisis the real trouble that we had to suffer was the demand for dollars from all over the world. It was not our own demands, but the demands of all the nations of the Western world, and they include Canada, and the South American countries. The right hon. Member for Bishop Auckland said:
All these countries … are running very short of dollars and are increasingly demanding from us sterling convertible at once into dollars, quite apart from any obligations of the American Agreement."—[OFFICIAL REPORT, 7th August, 1947; Vol. 441, c. 1667.]
The fact was that the pent-up hunger for dollars on the part of the free world, which was due to the war with all its deprivations and economic distortions, found an outlet through the channel of convertibility of sterling and burst its banks in a very few days. Thank goodness we can now look back on a month of sterling convertibility and can see that nothing of the sort has happened this time.
When the step was taken some people were nervous about it. The Financial Times, which welcomed it, said on 29th December:
The £ might be disturbed by the rumours about the German mark.
What has happened since 29th December is that not the German mark but the Belgian franc has been under suspicion and under pressure, due to events in the

Congo and elsewhere, but there has been no adverse reflection on sterling whatsoever. My information is that so far from our losing gold and foreign exchange as a result of the Belgian crisis, some may have been gained. This is a most marvellous and welcome change from the events of 1947 and one which we should not overlook.
The Leader of the Opposition described this move, in the words quoted by the Financial Times on that day, as follows:
One can only regard it as a surrender to creditor countries.
But with the best will in the world, one must pay one's creditors. It is characteristic of the right hon. Gentleman's attitude, and that of his hon. Friends, that a move by this country to meet its obligations is a surrender to creditor countries. I do not think that I need enlarge on that.
I also thought that, in the course of his very interesting speech, although he showed great expertise in all the matters which he discussed, the right hon. Gentleman was a little ingenuous when he spoke about commodity shunting and said, as I recall his words, "I have never yet been convinced whether it is more expensive for a country to stop commodity shunting by holding the rate or by allowing it."
The essence of commodity shunting is the sale of a commodity in the sterling area for dollars at a price and on terms where the proceeds do not come to the sterling area. Therefore, one is losing an asset which had a potential dollar value and one is not receiving dollars in exchange; and as one, two, or more intermediaries may have been making a profit en route I cannot see how the right hon. Gentleman, with his great financial knowledge and expertise, can bring himself to regard a transaction of that sort as otherwise than harmful and damaging to this country.
We have also had a point made about "hot money". It is a somewhat technical point but it has great relevance. At the moment in New York the rate for three month Treasury bills is 3 per cent. The rate back in London is 3⅛ per cent, but in the foreign exchange market sterling is at a discount, for three months, of a quarter of a cent, which represents a rate of interest of ⅜ths per cent. Therefore, any American bank sending money here to invest at 3⅛ per cent., and


covering the forward exchange, would be receiving a net rate of 2¾ per cent., that is less than it could have got by leaving the money in New York.
This seems to me a major point. It proves quite conclusively that people are finding it convenient and satisfactory to leave their money here for the purposes for which they could find employment for it. Previously, when we have had high rates of interest here, they have been counter-balanced to a great extent by a corresponding discount on forward sterling so that in fact we have really enjoyed only "fairy gold". That is to say, we have had money here from America but the forward exchange has been covered so that the money was liable to be withdrawn in the three months and, although we had the use of it for three months, it was liable to melt away on the very day when we could use it. That is why it is called "fairy gold".
On the question of reserves, it is clear that no adequate explanation will be convincing to the public as a whole. It is generally thought that the monthly figures of gold and dollars now published by the Government are only part of the picture. The Leader of the Opposition has indicated that in his opinion the position is not as good as that which the Chancellor of the Exchequer indicated in the course of his most interesting and illuminating remarks. Whatever the position, neither of them spoke simply on the basis of the published monthly figures.
That leads me to ask the question whether any really useful purpose is served in present circumstances by publishing those monthly figures which are, from what has been said by all those eminent and hon. and right hon. Gentlemen, misleading in themselves. I should like to think we had reached the situation where, instead of publishing monthly reports on the Exchange Equalisation Fund, we should do so once every three months, and then finally we might reach the stage when people were no longer interested. After all, before the 1914 war we had no reserves, as such, and there was no Exchange Equalisation Fund. People were willing to leave their money here because it was fully convertible into any currency they wished. I feel that we are moving towards a

similar position again, and in that belief I suggest that the monthly publication of a figure admittedly misleading no longer serves a useful purpose.
It is always a relief to hear from hon. Gentlemen opposite their great belief in maintaining the £ sterling and their determination to do so. We share that belief and determination but we sometimes express it differently. Incidentally, I do not think that all the remarks we have heard today will equally strengthen that admittedly tender plant.
In 1947, when the great disaster of premature convertibility struck us and we seemed to be bleeding to death, we still had a gold reserve of £600 million. Those were not devalued pounds. In other words, we had a gold reserve of 2,400 million dollars. The gold reserve today is not markedly different. For reasons which I have given already the figures are not very straightforward, but we can take it that we have 2,500 million dollars in gold.
In the words of the Financial Times, the available reserves amount to
…about twice the sterling balances held by, and the acceptance credits outstanding to, foreigners outside the sterling area…".
Although that is a very convincing amount to hold, it is not enormous and it cannot protect us against a permanent imbalance in our terms of trade.
Speaker after speaker has stressed the fact that this Measure has nothing whatever to do with balance of trade conditions. It will not alter the balance of trade one iota and despite the progress we are making, I am sure the actual gains by London in foreign exchange and other markets will be larger than the small figure of £100,000 mentioned by the Leader of the Opposition. They are obviously not sufficiently substantial in themselves materially to affect our balance of payments. Therefore, there can be no doubt of our duty as responsible Members to stress to our constituents the fact that the balance of trade position is everything to us, and that nothing we have done today has reduced its importance in any way.

7.4 p.m.

Mr. M. Philips Price: The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has referred in an interesting way to what


happened in 1947, and we can agree that things have improved very much since that time. The difference between the two sides of the House is on the question whether this is the right time to take this step. We can all agree that some such step will be necessary sooner or later; the question is whether it is right now. In my few remarks I hope that I shall be able to give a few reasons why I think it is unwise.
I, and I think, also, my right hon. and hon. Friends on this side of the House, have no particular prejudice against the City of London, but I can remember the time that we were on the Gold Standard and the policy of Mr. Montagu Norman, the Governor of the Bank of England. He was a very strong man who certainly dominated the policy of the Government of that day. At that time, in the words of a famous American statesman, we were being crucified upon a cross of gold. I remember well Mr. Montagu Norman coming to this House and talking to a number of us about the financial policy of the country. He said that he would not like to be responsible for the direction of the Bank of England if we went off the Gold Standard, and within less than two months we were off it and have been off it ever since.
We all recognise the value of the City of London in earning money which supports our balance of payments in various ways, such as by interest and discount, and so on, on money coming here. On the other hand, there is no use disguising the fact that its activities can sometimes dominate the industrial interests of the country. I say that because an increase in the Bank Rate may enable certain operators in the City to earn money, and this may disastrously affect our industrial interests.
It is things of that kind which are responsible for those of us on this side of the House wondering whether we ought to take this step now. Only recently we have been through a serious crisis. We have shut down on expansion, we have even reduced production, and we have had a very high Bank Rate because of the position of the £ sterling. I will not say that some of those measures were not necessary, but we join issue with the Chancellor on quite a number of measures which he adopted to attain that end and which we think were wrong.
There can, therefore, be no doubt that at times the financial interests of the City, or of some people in the City, and the industrial interests of the country conflict. We have now a large section of our workers unemployed. It is true that this is not as bad as it was in the great financial crisis of 1931, when we had 1½ million unemployed, but this danger is always lurking.
The issue today is not quite the same as it was in 1931, since now we have a managed currency, but we are still in a difficult position. We are a small island, dependent on our export trade, and our balance of payments should be the lodestar of our financial policy. I would not object to the action taken by the Government in the Bill if it were clear beyond peradventure that no dangers lie ahead, but we on this side, who do not want to spread alarm and despondency, would be lacking in our duty if we did not point out the dangers which we think lie ahead and which make a step of this kind just now a rash step.
The Chancellor said in his speech that we cannot have a closed economy. I agree, but we cannot have an unstable economy, either. How can we be sure that the circumstances which have enabled us to get this large surplus on our balance of payments are likely to persist? I should say that they are most unstable. That is why the Chancellor ought still to retain a number of controls and means by which he can prevent things getting out of hand. We are glad to see that the commodity markets are now firm after their movements over the last eighteen months. That very fact, although it has enormously helped us in our balance of payments, meaning that we have lower debts with other countries, may bring trouble because former dependencies of ours which are now independent are unable, because of their raw material situation, to buy so much from us. There is a danger. Can we overcome it? The next six months may show whether we can. We all hope that we can, but it is by no means certain.
India, one of our former great dependencies, now has balances with us. She has an enormous five-year plan of development, absolutely vital for such a country, and she has to face the problem of a population increase out of proportion to the increase in her food resources, a


very serious situation. We must help India in every way we can by letting her have all the balances possible and also helping her with loans and advances. This is one of our great duties, not only in respect of India but in respect of countries in Africa, for whom we still have responsibility or to whom we are still very close. All that means that there will be a severe strain upon sterling, because it means that we give credits but do not receive immediate payments. That is another example to show that the situation is by no means certain and why a step of this kind seems to be unwise.
The Chancellor reminded us that the contributions to the International Monetary Fund are being increased. I believe that we have to find £60 million. That is a further burden, a very right and proper one, because if world trade is to be on a sound basis we must assist the countries which cannot for a year or two pay for our exports and must give them credit. All these are difficulties which must be met.
Then there are our reserves. Are they such that we can feel quite confident about them? According to the Chancellor, we have considerable commitments in debts to the United States and Canada, to the International Monetary Fund and to a number of other countries and institutions, which have still to be met and will reduce the figure which he gave us. We still need a flexible policy to stop any danger which may arise from any of the circumstances to which I have referred. We must not have our hands tied and be unable to take steps when a danger of this kind arises.
There is the whole question of American investments over here and throughout the world, which have been very instrumental in assisting our balance of payments and assisting other countries, like France, which is always in difficulty with its finances. That is an uncertainty. We do not know what the attitude of Congress is likely to be. Congress is liable to have sudden waves of emotion and may suddenly take steps which the President and the State Department may be against, but which they have no means of stopping.
As the Leader of the Opposition pointed out, the great advantage of the European Payments Union is that it

enables the European countries to help each other by credits. If there is a temporary difficulty, and payment cannot be made by one country to another without great embarrassment, credits can automatically be provided. That is an example of the flexibility to which I have referred.
The policy of the Government, however, like the policy of the Conservative Party generally, is to leave things to work themselves out. That may be all right when the weather is fair; but I am not so sure that the weather is fair. There are still some storms ahead, though they may not be as great as in the past. I believe we can see the dawn coming, but there are still some severe storms on this side of the horizon.
Private financial interests must not be allowed to have a free hand. The Chancellor must always keep the right to intervene in the public interest. I return again to the great crisis over the Gold Standard in 1931, when the interests of the City conflicted with the interests of industry and we had 1^ million unemployed. Miners, steel workers, engineers and others were passing through a very serious crisis of unemployment and depression. Although, in 1931, we were being crucified upon a cross of gold, I feel that the danger now is that we may be left to the mercies of a laissez-faire system.

7.18 p.m.

Viscount Hinchingbrooke: The Labour Party has given another example of its propensity to diehard reaction. The speech of the hon. Member for Gloucestershire, West (Mr. Philips Price), whom I have always regarded as the most reactionary Conservative of them all, was no exception. It was one long tale of woe, alarm, fear, and anxiety about the future.
What comes out increasingly from the speeches of hon. and right hon. Gentlement opposite is their desire to hang on long after the need has passed and the mood of the public has changed to the ancient and creaking machinery which they themselves invented in 1945 or thereabouts. Nationalisation is an example. Long after the time when nationalisation has failed in many ways, and the ordinary individual wishes to see drastic changes made in it, hon. Members


opposite hang on to it and even express the intention to renationalise.
It is the same with these monetary devices. The Leader of the Opposition and the hon. Member for Manchester, Cheetham (Mr. H. Lever) hang on desperately to the baby of E.P.U. long after it has been thrown out with the bath water of transferable sterling, not realising that they have nothing left with which to wash it and that it is no use keeping this piece of machinery any more. The Leader of the Opposition is, at any rate, consistent; he regretted the departure of both. But the hon. Member for Cheetham, who generally delights the House with sporadic interventions from the North on sociological and literary subjects, today bored us to tears on a subject about which he knows nothing and was wildly inconsistent on the major theme which he propounded.
The hon. Member regretted the departure of E.P.U., but he liked convertibility. What is the purpose of trying to keep a rusty old machine alive when it is not even designed to do anything in the economic and monetary world into which we are now moving? How much more free and enlightened is, if we like to use the old-fashioned economic term, the laissez-faire apparatus of full convertibility applied to the life of the individual and the trader than even the most perfectly devised economic machinery set up in Western Europe of which the hon. Gentleman can possibly conceive.
The Chancellor, as he always does, delighted the House today in a speech at times contemplative and philosophic but in the main stream of advanced and enlightened opinion throughout the country, certainly on these benches and I am quite certain in the international trading centres of the world. It was the pure gospel of the right trading philosophy for this country and I was very delighted to hear him expound it. I should also like humbly to congratulate him on the sudden, perhaps, but not wholly unexpected move which he made at Christmas towards the partial—I use that word advisedly—convertibility of sterling and on securing the assent of our important partners in Europe for it.
I believe myself that that move could have been taken a year ago had it not been for the unfortunate disputes which took place with regard to the level of

Government expenditure. The one thing that has made convertibility possible is the cessation of inflation. Once we have the atmosphere right for convertibility it does not really matter if our gold and dollar reserves are not enormous. They can be nothing at all if the psychological atmosphere is entirely right.
I think that it was getting right in December-January of last year as a result of the wise steps which the Chancellor at that time took and the Government wholly approved of. We could have had convertibility a year ago. However, we have got it now and the question is whether we advance from there or whether we do not.
I missed part of the speech of the Leader of the Opposition but I am quite sure that he would not have mentioned this subject, because he hates the whole thing. Little, if anything, has been said about the next stage in convertibility which may not be of enormous importance from the trading point of view but from the point of view of the liberty of the subject is of very great significance—that is to say, the total convertibility of resident sterling.
Four nations of the world have a totally convertible currency. No one complains about the United States and Canada. They have had it all along. Switzerland has had it all along. No one can complain of the fact that Western Germany has now full convertibility and everyone in Germany, no matter whether traders or private persons or people with a little capital or ordinary people who want to go abroad, can do so at will. We do not complain about that; we note it. We note where Germany is today and where she was 10 years ago and we wonder whether Britain should be very far behind in the pursuit to full convertibility of her own currency so that British individuals, not necessarily the rich and prosperous businessmen with enormous backing and allowances from the Treasury, but individual people—I will say more about that later—can go abroad.

Mr. Arthur Lewis: The half-million unemployed, for instance.

Viscount Hinchingbrooke: I have not the slightest doubt that when the hon. Gentleman makes expeditions to certain


parts of Central Europe he does so with adequate trade union backing.
It would not be a very dangerous thing, it seems to me, to take this step and take it now. It may have been a little risky to do that all in one fell sweep. We have to see what will happen. The major step is convertibility of non-resident sterling but, as the Chancellor himself pointed out today, when it was taken sterling was at 2·80 dollars and today it is at 2·81 dollars. Moreover, this is the season for making such changes. In a few months time we shall get to a season which is a little bit more dangerous. Many times convertibility has been brought up to the boil. The present Home Secretary and a great many economists were arguing in favour of convertibility in the summer of 1955 and then the psychological moment passed and the run on sterling came through the natural trading causes which take place in the autumn of the year. I am sure that the Chancellor has very much in mind that if full convertibility is to take place it must take place within the next six months.
There is an argument about the floating exchange rate. The hon. Member for Gloucestershire, West seemed to despair of the circumstances that prevailed in 1931. I quite agree that unemployment then was disastrously high, but, as I pointed out in an intervention to the hon. Gentleman the Member for Manchester, Cheetham, who did not deal with it, no disasters in trading took place between 1931 and 1939.
On the contrary, sterling was expanding and trade improving and had it not been for the advent of Hitler—a piece of violent wishful thinking—the whole trading system of the world and of our own country and employment would have improved as the result of going off gold in 1931.

Mr. Philips Price: Was it not because we went off the Gold Standard?

Viscount Hinchingbrooke: We did go off the Gold Standard and I want us to go off the Gold Standard now, or partially so, as I will explain in a moment. We had the benefit of the Exchequer Equalisation Grant and it operated on this rating system just as it would operate today.
I notice, on reading Article 4 of the Final Act of Bretton Woods, Section 5,

that it is clear that we are estopped more completely from a system of a free £ than we were in 1931. We had then no international engagements. Today, we have. If we wanted to free the £ entirely and allow rates to go completely free we would have to approach the International Monetary Fund under the provisions of the Final Act of Bretton Woods, 1945.
I wonder whether attention might be given to the possibility that widening the rates at which sterling is quoted against the dollar might not take place under Article IV, Section 5 (c) which reads:
When a change is proposed, the Fund shall first take into account the changes, if any, which have already taken place in initial par value of the member's currency as determined under Article XX, Section (4). If the proposed change together, with all previous changes, whether increases or decreases, (i) does not exceed ten per cent, of the initial par value, the Fund shall raise no objection.
That is to say, there is liberty, after consultation with member countries, to devalue or revalue our currency by 10 per cent. That is a question which I want to ask, but I do not expect an answer today.
Cannot we now go to the Fund and say, "We wish to be allowed to widen the rates by 10 per cent, permanently". That is to say, the dollar would be able to fluctuate—taking it at 2·80 today— between limits of 2·52 and 3·08 without the loss of gold and dollars, or without the gain of gold and dollars, as the case may be. I suggest that is a possible means which might be explored of gaining a certain freedom of manoeuvre for the £ without violently impinging upon our international obligatons.
Apart from the possibility of doing those things, can the Government hold the situation as it is at present without resorting to full convertibility? The front is crumbling, or will crumble from this time on. Just as it becomes extremely difficult to manage the multiplicity of currencies without doing something about transferable sterling, so it will be very difficult, having got rid of transferable sterling, to allow the external owner of sterling to draw down on English balances without allowing the British holder to do the same.
For example, what happens if someone desires to go on a holiday? Formerly, one took one's money from the Bank of England and used the amount of the


travel allowance, and only that. What is to prevent an individual sending a cheque in respect of a holiday abroad to a banking account of a non-resident holder of sterling?

Mr. H. Lever: Try it and see.

Viscount Hinchingbrooke: Many transactions take place between the Smiths and the Joneses. Supposing it is not Jones, but Johannes. Supposing that Johannes, as he will be entitled to do after this relaxation, draws out the money in his sterling account. Of course, these transactions would have been discovered even if I had not disclosed the possibility, but I want to disclose the possibility because I do not agree with a system which perpetuates exchange control for British subjects long after people overseas have been entitled to draw upon our currency.
I shall give a more striking example. I shall not waste much time on it, because there is no doubt that much will be said about it next week. There is a certain proportion of the Egyptian sterling balances not earmarked for discharge against the claims of British traders, the Shell Company or Suez Canal Company owners. The calculation is difficult because we do not yet have the figures, but let us suppose that it is a sum of £50 million. Will Nasser be able to draw upon that £50 million at will and pay it to the Russians for his equipment, or to the United States for his equipment? I presume that he is to be able to do that. Can we defend a situation like that and yet prevent people resident in the sterling area from doing what they like with their capital and with their earnings?
That is not a situation which can last for very long. Why should not British personal capital be exported to foreign countries if people so desire? Are we not trying to create a freer world society for persons and goods? We have had it for traders who can more or less do as they like, as can important British firms. However, relatively humble people cannot now satisfy their desires in the normal way unless they resort to the most elusive tactics.
If one wants to spend a holiday in North Africa or in the South of France, one may have to do it on the royalties of a book sold in the United States or by entering into an au pair arrangement with a family which wants to come to this

country. Is that legal or illegal? Nobody knows, yet the thing is done on a vast scale. I hope that before long we shall hear the news that travel allowances are to be abolished and that people are to be allowed to move themselves and their property to any part of the world at will.
There does not seem to be any standard of equality in these matters, either at home or in the sterling area. Great dukes can leave their estates in the Midlands and move to Central Africa and make a "killing" and yet a humble historian who wants to write a work on a holiday in the South of France, Spain, North Africa, or somewhere else, where there is a little sun and refreshment, has to get the permission of the Economic Secretary to the Treasury and officials of the Bank of England. They will run him on a shoestring in those conditions. It is absurd. I hope that within the next two or three months the Chancellor will find it possible to put Britain at last into the same position as Western Germany, a country over which, not long ago, we were supposed to have been victorious.

7.35 p.m.

Mr. John Diamond: The noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) appealed for fair shares for the rich to travel more easily from this country, but it was an appeal which did not strike a sympathetic note with me. I regret that he should have started his speech by criticising my hon. Friend the Member for Manchester, Cheetham (Mr. H. Lever) on the ground that my hon. Friend did not know what he was talking about. My hon. Friend speaks with great knowledge of these matters, very differently from myself, since I approach this subject with considerable timidity and humility, recognising that it is very technical and a subject on which it is quite possible to be wrong.
Certainly, it is the correct approach to learn from one's experience, and the noble Lord might well think so, too. He heard my hon. Friend the Member for Gloucestershire, West (Mr. Philips Price) remind the House of his recollections of the financial crisis of 1931. He heard his hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), with his great experience and knowledge of the City, reminding the House of his views about the financial crisis of 1947.
None of us who was in the House in 1947 will readily forget what happened then. What happened then was what the noble Lord is criticising us about, calling us Conservatives or even worse.

Viscount Hinchingbrooke: Diehard reactionaries.

Mr. Diamond: He said that we were holding on to outmoded and unnecessary controls, presumably as happened in 1947.
The noble Lord has not given this matter any thought. This is not a matter for violent controversy. It is a matter of timing, about which there can be opinions and which both sides should consider carefully. It is true, as the Chancellor said, that our ultimate objectives are identical, to have a strong £ to increase international trade and Britain's share in it, and for that purpose as soon as possible to have a strong and convertible £"as soon as possible", meaning when it can be done without damage to wider interests.
The Government have made a mistake in timing. As the Chancellor will remember from his nursery, there is a time and a place for all things. The time to introduce a further measure of convertibility is not when we are in a period of recession. That that is the case has been underlined lately by a chorus of bank chairmen—I do not know whether "chorus" is the right word; perhaps a more suitable collective noun would be a "credit" of bank chairmen. However, the bank chairmen are unanimous in describing the present situation in strong terms and as a period of recession. What the Government are now doing is to make our position slightly more vulnerable to external financial weather.
I know they say that this state of affairs has been going on for some time; in fact, they have had to maintain transferable sterling, and, therefore, there is no major difference. There is a difference. Previously we have, as it were, been like a man who has an overcoat in the cupboard which he has not used because he has not needed it. That overcoat is now being destroyed. That is satisfactory so long as the weather continues mild and we do not need to wear overcoats.
But what happens when the external financial climate gets bitter once more, as it is liable to do from time to time, and we go to the cupboard and find it bare? That is what is happening with the removal of this protection which, admittedly, we have not used for some time.

Mr. John Arbuthnot: The rats got at the hon. Gentleman's overcoat a long time ago.

Mr. Diamond: That is not quite true.

Mr. H. Lever: And it is not very clever.

Mr. Diamond: Anyone with experience of what happened as recently as September, 1957—I am not referring to the Gloucester by-election, but to the financial crisis—will not speak too lightly of our need for safeguards in difficult external financial circumstances. If, as I say—and as the banking chairmen seem to agree—we have a period of recession, what steps would we wish to take, and to what extent would those steps be assisted or retarded by what the Government propose to do?
Presumably, the steps we would take to encourage the economic activities of the country would be to lower interest rates; to increase investment; to undertake larger overseas lending; to stimulate increased consumption. All these are the normal steps which would be taken, and I do not think that there will be any argument as to the wisdom of doing these things, were it an appropriate time to do them and we could do so with safety. All these steps are rendered slightly more dangerous by what the Government are proposing.

The Paymaster-General (Mr. Reginald Maudling): The Paymaster-General (Mr. Reginald Maudling) indicated dissent.

Mr. Diamond: It is no use the Paymaster-General shaking his head. I would not accept his head shaking against the evidence of The Times. It is always a good thing to quote The Times, because generally one gets good sense from it. It is biased in favour of the Government, if anybody, and, therefore, one can use it in an argument in a case like this. It has the added advantage that what one says is likely to be reported in The Times on the following day. The Times said today, in its leading article:
The various types of encouragement which bank chairmen have suggested, such as easier


money, stimulants to consumption, and overseas lending and investment, would all in fact be somewhat safer in the short run with an inconvertible pound.

Mr. Muudling: At the risk of never being reported in The Times again, may I say that I think that what appears in The Times is not evidence, but opinion?

Mr. Diamond: It is an opinion which I share. I apologise for the fact that I read the whole quotation and I did not put in a stop which did not appear—and in that I did not follow the precedent set so ably yesterday.
Assuming that I am right in saying that all the steps we wish to take to assist the country out of the recession in which we find ourselves are rendered slightly more difficult as a result of what the Government are proposing to do, one has to balance the two and see which is more important and useful to the economy of the country. T find these things very difficult to reduce to simple terms in order to explain the situation to a constituent.
A constituent may come to an hon. Member and ask why are there not more houses. The answer is that at the moment there should have been more houses, because the Conservative Government have a very good record on houses—one has only to ask the Conservative Government to have confirmation of that. There would have been more houses but for the fact that the cost of borrowing money is so great that it has made some local authorities clamp down completely on building houses; and so there is not a house for the constituent who asks that question because of the excessive cost of borrowing money.
The constituent may ask why the cost of borrowing money is so excessive. The answer is to protect sterling; to encourage funds to come into this country at a time when funds are going out we are considering making the £ even more convertible.
Let us go on to another item, investment abroad. Surely nobody would deny that the greatest step which could be taken by any Government of this country to assist world peace would be to invest in the underdeveloped countries. We are unable to do this—which would assist those countries to take more imports

from us and so assist our economy—because, again, we have to retain funds to protect the £.
Let us take a third example. What if we invest a great deal more—as we should—in capital investment in our industries and get economic activity at a much higher level, which would produce further imports? There would be the problem of paying for the imports. All these are problems which have been increased by the present proposals of the Government. That would be a further difficulty which we could not face with the same security against temporary balance of payment difficulties, now that we are shorn of the protection which the Government are removing today.
How am I to explain to an unemployed aircraft worker in my constituency, for example, that the Government are not prepared to make an adequate Exchequer contribution to his superannuation fund because Herr Schmidt, in Zurich, does not like that sort of social policy? How do I explain to an old-age pensioner—who has not the money to buy the coal which is being piled up in the Forest of Dean, in the constituency of my hon. Friend the Member for Gloucestershire, West (Mr. Philips Price), during this freezing weather—that the Government are not prepared to increase old-age pensions at the moment because such a policy may be frowned on by Herr Braun, in Berne? Do not think that these policies of ours do not affect our partners? They do.
This is exactly what the right hon. Member for Flint, West (Mr. Birch) was referring to but he was putting it the wrong way round as usual; he was saying we had to pay for whatever we did. That is quite right. Our policies are, in the long run, good policies, good for the country as a whole. Yet they are totally misconceived by foreign bankers who dislike them—and, therefore, lose faith in us and them—and so they are going to lead to difficulties. It is right that we should be protected from such stupidity until our policies have been proved to be wise. For all these reasons it is wrong that at present, in a period of recession, we should take any action which, however slightly, might mitigate against the immediate recovery which is needed in the country.
I say that hon. Members on this side of the House, much more than hon.
Members opposite, are anxious to achieve the necessity for a really strong £, based on actual assets and wealth produced by people who are fully engaged and not 20 per cent, under-employed, as are our factories at present. Those factories should be fully engaged in producing the wealth which is the real backing for the £, as any banker in this or any other country will agree. We wish to achieve that. We say that the Government are prejudicing that achievement in favour of something which is not reality at all. The Government are searching for the shadow instead of producing the substance.

7.47 p.m.

Mr. John Arbuthnot: The hon. Member for Gloucester (Mr. Diamond) has reiterated a fallacy which has permeated a good many of the speeches made by hon. Members opposite. He put the matter in graphic terms by describing the use of transferable rather than convertible sterling as his overcoat. What he does not seem to have appreciated is that the overcoat has been non-existent from 1955 when we took the decision to support the exchange rate for transferable sterling. We have had no option ever since 1955 and the overcoat just does not exist.

Mr. Diamond: I apologise for interrupting the hon. Gentleman so soon, but if this has been the position since 1955, why are we wasting our time here today? What are we doing now and what were we doing in 1955?

Mr. Arbuthnot: That point has been answered several times so I shall not go into it again. The apparent protection to which the hon. Gentleman refers is purely illusory. The hon. Gentleman is rather like the king in the fable who was getting himself a coat and it had to be made of extremely fine material. The king was not satisfied with the first coat so he sent it away and chopped off the head of the man who made it. Then he got a coat of even finer material but, not being satisfied with that either, he chopped off the head of the second tailor. Ultimately, he got someone to make him a coat which he deluded himself to be of extremely fine material so fine that it was invisible, and which in fact did not exist. The king was satisfied

with it until some of his courtiers found that he was running about naked and started to laugh. That is the position in which hon. Gentlemen opposite find themselves at the moment in thinking that transferable sterling provides us with any more protection than convertible sterling.
The Leader of the Opposition was less than fair to my right hon. Friend the Chancellor of the Exchequer in suggesting that my right hon. Friend had said that we no longer had a dollar problem, that dollars were easy from our point of view, and that it did not matter how many dollars we spent. My right hon. Friend has never taken that line—either in this debate or before. Right hon. and hon. Gentlemen opposite should not accuse my right hon. Friend of suggesting that a dollar problem does not exist. Of course, a dollar problem exists.
This Bill is just one step, and a small step at that, in the general process of enlarging the freedom of trade and exchange which is generally regarded as desirable on both sides of the House and ought to be welcomed. It is not a major step since, as my right hon. Friend pointed out, it merely gives de jure recognition to a position which existed de facto from the time at the beginning of 1955 when we took the decision to support the exchange rate for transferable sterling. In recent months in fact transferable sterling has been marketable in exchange for dollars at a price which from time to time has had to be helped out by the Bank of England and which has been roughly within 1 per cent, of the official sterling-dollar rate.
A point which it is very necessary to get over to hon. Gentlemen opposite is that, whatever happened, transferable sterling would have had to be supported no less than convertible sterling which now takes its place will have to be supported. No additional strain therefore is being put upon the economy by the Bill.
Hon. Members opposite have criticised the timing of my right hon. Friend. If it is generally accepted, as I think it is, that the freeing of trade and exchange is desirable as an objective, in my view this move could not possibly have been better timed. The dollar, whether rightly or wrongly, is relatively weak in comparison with what it was some months ago and with what it may become again. This is


in part, as The Times pointed out, because so often the same goods are available elsewhere promptly and at lower prices than they are from dollar sources. There is no longer therefore the intense hunger for dollars that existed even a short while ago.
A further factor which indicated the timing of this move is that France, for the first time since the war, has a strong enough Government to take the drastic measures necessary to enable France to take her part with us and to enter into the convertibility system. To have neglected this opportunity would have been criminal folly of which no Conservative Government would have been guilty, although apparently the opposite side does not feel the same way about it.
In the long run the proof of the pudding is in the eating, and, this particular pudding is palatable. As my right hon. Friend the Chancellor has pointed out, transferable sterling was at 2·79½ before his announcement and convertible sterling was at 2·80½. Now the rate is 2·81 for the two merged together. It seems clear that anyone who looks at this matter objectively—your international banker for example—must feel that this has been the right moment for us to take this further step towards freedom. Perhaps we are not the people to judge best and most objectively since we are too close to what is going on.
If we ask ourselves whether the mythical Swiss banker agrees with the Opposition Amendment that this Measure
makes more difficult the achievement and maintenance…of industrial expansion and full employment
it will be clear from the way in which the rate of exchange has improved since the announcement was made that the objective observer outside agrees with the way in which Her Majesty's Government have handled it rather than the way in which the Opposition would have handled it had they been in power.
The Leader of the Opposition expressed fears about what the next steps were to be and said that while he did not mind this so much his real fear was that further freedom would follow. Dollar imports, he suggested, would not be easy to withhold from United Kingdom citizens, freedom would come for non-resident capital and eventually for the export of British capital. Well, that is an objective

to be pursued but it is right to proceed cautiously. My right hon. Friend has been right in taking one step at a time.
We all look forward to the day when United Kingdom residents will have the same freedom of choice that is now available to others. I believe that that time may not be far off. Unfortunately, of course—and this is something that the Opposition must bear in mind—the greatest threat to sterling and to sterling balances is the fear that the Opposition might conceivably win the next General Election and put into practice some of the inflationary ideas such as we were discussing yesterday, for example. The Opposition can do much to set at rest that real threat to sterling.
The Opposition Amendment fears that it will now be more difficult to maintain industrial expansion and full employment, but I do not think that is so. It is true that the Government have found it necessary to stimulate employment recently by encouraging consumer demand, but that is only part of what the Government will have to do. It will undoubtedly be necessary to stimulate further industrial capital expansion as well if we are to keep pace with other progressive industrial countries. We need in this country more modern equipment. It is common knowledge that the capital equipment behind the working man in the United States is far greater than the capital equipment behind the British working man. We also need a greater use of the existing capital equipment behind our people. We must give more stimulus to greater production and greater use of the capital equipment we have today.
My right hon. Friend's opportunity further to stimulate industrial expansion will arise, however, when he opens his Budget. He has already shown his sense of the need for greater production by the measures included in the last Finance Bill, for example the larger initial allowances. If in the next Finance Bill he finds himself able to take a smaller slice of the national income in taxation and leave more for individuals both to save and to spend he will be doing more than anything else to encourage industrial expansion.
If in addition to that he finds it possible to give tax inducements to encourage still further increases in savings, particularly savings put into industry and savings by the small man into whose


pockets by far the greater proportion of the national income goes, we need have no fear for expanding industrial production.
Taking a further small step such as we are taking in this Bill to enlarge the freedom of trade and exchange is not I submit a threat to production and employment. On the contrary, it is a stimulus to both and a challenging opportunity in line with the spirit of enterprise which has made this country great. I support the Bill.

8.2 p.m.

Mr. John Cronin: The hon. Member for Dover (Mr. Arbuthnot) made a very helpful speech and I find myself in agreement with much of what he said. I was a little disappointed, however, that he should lend some currency to the idea that a Labour electoral victory would lead to a flight from the £. His own Front Bench said no such thing because it was probably felt to be anti-British and not to make good sense, so I do not think he need have repeated the suggestion.
The general feeling on this side of the House is, I think, that the Chancellor by this step to make transferable sterling convertible puts the domestic economy of the country rather at the mercy of foreign influences. The Chancellor normally directs the economic traffic but now he is becoming rather like a robot traffic light on which foreign speculators operate the buttons. Before I develop this idea, I wish to say that the short-term effects of the Chancellor's action are obviously good. The hon. Member for Dover has pointed out the satisfactory effect it had upon the £ sterling.
No one will deny that, looking at it even from the long-term point of view, it is quite clear that the liberalisation of payments throughout the world is as an ideal a desirable thing, but of course exactly the same arguments apply to the liberalisation of trade. We may talk in terms of ideals, but I do not think anyone will seriously suggest that we should make a big reduction in our tariff, even if it is in the interests of world trade. We must think rather more in practical terms.
Of course there will be another effect, a long-term one, in that there will be a big increase in the turnover of the London

foreign exchange market, but that, after all, is a negligible sum compared with our balance of payments.
In his speech, the Chancellor made several statements which I must say I found some difficulty in accepting. He pointed out that whenever transferable sterling had not been supported by the Exchange Equalisation Account there was a tendency for commodity shunting to occur. As my right hon. Friend the Leader of the Opposition pointed out, there is a good deal of doubt whether more gold is lost by commodity shunting or by a fall in the transferable rate. He also said that any fall in the transferable rate would cause a weakness in sterling. Unfortunately, that consideration applies equally well to any fall in our gold and dollar reserves. We merely transfer the effect of one problem to another.

Sir Peter Roberts: I do not know whether the hon. Member heard my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) who dealt with the question of commodity shunting and loss of gold. I do not think we can accept any contrary view unless some argument is put against that.

Mr. Cronin: I thought the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) made an admirable speech. I listened to it with great attention, but I did not think his argument showed that commodity shunting had caused a loss of gold and dollars compared with a fall in the transferable rate.
The Chancellor rather made a point that in taking this action we acted in concert with most of the other countries of Europe. I do not think that is really a particularly powerful argument, because we are doing all the other countries of Europe a favour by acting with them. We are solving their dollar problem. In future they will be able to get dollars in exchange for our sterling, so it would be quite extraordinary if they were not in favour of this step on those general lines.
The Chancellor said that the winding up of the European Payments Union was desirable because France had exhausted her credit. Certainly one has to concede that the European Payments Union was working less efficiently on account of the financial difficulties of France, but it is rather unfortunate that it should be


wound up just at the time when France had put her financial house in order and when those difficulties are not likely to exist in future, particularly with the very substantial loan France is getting from Germany.
This is a difficult subject. I would concede to the Economic Secretary to the Treasury that this decision is a marginal one, but unfortunately most economic decisions are marginal. Although there are arguments both for and against formal convertibility, it is not easy to come to a definite decision. I think it rather important that we should try to fight our way through the undergrowth of debate and go back to some first principles to see where they lead us.
It is very difficult to have fixed first principles in economics, because it is a subject in which there are so many factors which are variable, but the whole basis of this convertibility controversy is the question of domestic price levels. If one has a fixed rate of exchange and if the domestic price level rises there is a tendency for exports to become more expensive and therefore for imbalance in the balance of payments—an adverse balance and a run on the reserves. When that happens, and in these days even before that happens, there is a tendency for speculation against the £, causing a further run on the reserves. I think the right hon. Member for Flint, West (Mr. Birch) discussed the subject of speculation very thoroughly.
In full employment, with this expansion of our economy, there is almost invariably a rise in the domestic price level. The result, of course, is a tendency for the gold and dollar reserves to decrease with speculation against sterling. For all practical purposes, so far as we are concerned there are only two world currencies, sterling and dollars, and the speculation against sterling is vis-à-vis the dollar. The protections this country has against speculation or running down of the gold and dollar reserve are three. One is devaluation, which of course is very unsatisfactory. Devaluation would cause an enormous loss of confidence in the £. We have found it does not help this country very much because, although we get slightly better exports, this is more than counterbalanced by the increased cost of imports of which the level does not apprsciably drop.
The second way to defend the gold and dollar reserves when there is an increase in the domestic price level is by taking some action to decrease the domestic price level.
The third way is to exercise some form of control on transactions in sterling either by controlling the exchange of sterling for dollars or controlling the import of goods from dollar areas. If we leave out devaluation, it seems to me that the only two effective ways of protecting the gold and dollar reserves are by action taken to keep down the domestic price level or by some form of control over sterling-dollar transactions. The Chancellor of the Exchequer has made a tremendous onslaught on our controls of sterling-dollar transactions. As a consequence, we are left only with the policy of reducing the domestic price level whenever there is an expansion of our economy. If that happens, we are very vulnerable when we are unable to control foreign transactions.
The Chancellor told us this afternoon that transferable sterling amounted to about 700 million dollars. He was referring merely to static transferable sterling, but I think the Economic Secretary will agree that, in addition, there are about 600 million dollars held by non-territorial organisations and also that the turnover in transferable sterling is about 1,000 million dollars a year. To put it in simpler terms, half the world's trade is done in sterling.
Our reserves, which the Chancellor told us today are about £1,100 million, are quite exiguous and inadequate for that purpose. I am sure that no hon. Member will contest that statement. We are extremely vulnerable to any speculation causing the gold and dollar reserves to fall. The only weapon of defence whenever there is speculation against the £ or a substantial drop in the gold and dollar reserves is an attack on our domestic price level.
In September, 1957, we had a very vigorous onslaught by the right hon. Member for Monmouth (Mr. P. Thorneycroft), when he was Chancellor of the Exchequer. We had the phenomenally high Bank Rate of 7 per cent, and some very severe restrictions on credit. As a consequence—I think that no one will disagree that it is a consequence—we now have, by our standards, a very large measure of unemployment.
It so happens that the measures taken by the right hon. Member for Monmouth in September were very powerfully assisted by a very large change in the terms of world trade, because of the difficulties of the primary producing countries, and also by the weakness of the dollar and the flow of dollars and gold from the United States to Europe. It has been suggested, as my right hon. Friend the Leader of the Opposition pointed out earlier, that these auxiliaries were so important in helping us with our economy that the change in the Bank Rate and the credit restriction measures were not of much significance. That is probably an extreme view, but we must not assume that next time there is a crisis in our gold and dollar reserves, and an external trade crisis, we shall necessarily have the advantage of favourable terms of trade or of gold and dollars flowing from the United States into Great Britain.
It is clear that if there is another crisis it may well be that much more severe measures will be made necessary to reduce the domestic price level—much more severe even than those adopted by the right hon. Member for Monmouth in September, 1957. That means, in simple terms, that whenever we wish our economy to expand, and whenever there is a danger, therefore, of the domestic price level rising, the Chancellor must look over his shoulder and wonder what will happen if there is speculation against the £. That will be his constant fear.
I do not think that there has been a time for a long period when it has been more necessary than it is at present for us to expand our economy. We are suffering at the moment from a very severe shortage of capital investment. I think that the Economic Secretary will agree that the money to be spent on capital equipment in 1959 will be substantially less than that spent in 1958. As a consequence, we shall be faced with a very difficult competitive position. We shall be faced with the European Common Market coming into operation, and in the undeveloped countries we shall be faced with a good deal of competition by Soviet Russia and even Communist China. It is a very disagreeable thought that when the money which we spend on capital equipment is decreasing, Russia has just produced a seven-

year plan which envisages an increase of capital equipment by 81 to 84 per cent. What will happen when Russia comes into direct competition with us in the undeveloped countries?
I will not pursue further this argument of how the Chancellor's hands are tied, but we ought to face some of the other direct consequences of convertibility. We have tried convertibility before. We tried it in 1925, admittedly when the £ was excessively valued, and it was a disaster and led to massive unemployment. A well-known book was written called The Economic Consequences of Mr. Churchill. I hope that no book will be written on the economic consequences of the present Chancellor.
As several hon. Members have said, we tried convertibility in 1947 and the result was disastrous. I should like the Economic Secretary to recall that our gold reserves in 1947 compare favourably with our gold reserves now.
It seems that the Chancellor and his assistants have acted rashly. I fear that the Chancellor must have had some extraordinary advice. Usually he has behaved with extreme caution and his economic measures have been of a gradual nature, but on this occasion he has belied his nickname of "Derick, or Little by Little" and has taken a remarkably rash step.
Referring to the direct consequences of a more particular nature of the convertibility of transferable sterling, the first thing which occurs to me is that we in this country are now compelled to finance flights of capital from Europe. If any wealthy Frenchman is dissatisfied with General de Gaulle's taxes and wishes to transfer his money to the United States, or if a Swedish millionaire feels uncomfortable in the proximity of Soviet Russia and wants to move his money to the New World, all he has to do is to put his hands on sterling and he can get the dollars for it. We shall be formally obliged to finance all the capital flights from Europe.

Sir P. Roberts: How is that position altered by the Bill? That could have happened previously. The only difference is that he would have had a different rate for the transferable sterling, but he could have done it before. The position has not been altered.

Mr. Cronin: He could have done it before only as long as we agreed to support transferable sterling.

Mr. Arbuthnot: We could not afford to fail to.

Mr. Cronin: We could afford not to. Two years ago transferable sterling fell to 2·6 dollars. There were no disastrous consequences then. There is an enormous difference between de facto and de jure.
Another consequence is that overseas countries could formerly build up a gold and dollar reserve only by having an export surplus with the United States or Canada, or other dollar countries, but now all they have to do is to build up a sterling surplus with formal convertibility. We have solved their gold and dollar problem for them simply at our own cost.
While talking about speculation, another point to be considered is what further speculation will there be against sterling. When there was always a possibility of sterling becoming formally convertible it was in the interests of the financial speculators, the little men in New York and Zurich, to buy sterling, but now that sterling is convertible, what further interest have they in buying sterling apart from ordinary trading purposes? The whole speculative position of sterling is now reversed. Sterling is in a bear position.
We on this side feel that the Government have taken an ill-advised step, although there are arguments for and against it. We feel that a wrong decision has been made and it is a decision which we cannot reverse and have no intention of trying to reverse when we come to power. One thing is quite certain. As has been said by my right hon. Friend the Leader of the Opposition, and as no doubt my right hon. Friend the Member for Huyton (Mr. H. Wilson) will repeat, come what may, we on this side will do our utmost to support the £ under all circumstances.

8.22 p.m.

Sir Peter Roberts: I am grateful to have the opportunity of following the hon. Member for Loughborough (Mr. Cronin). As I understood him, he did not take into account the statement which my right hon. Friend the Chancellor of the Exchequer made earlier, that over the last eighteen months the Treasury has been keeping a very narrow

margin between the two forms of trading values. I do not think for a moment that the issue which we are now discussing is nearly as wide as a number of hon. and even right hon. Members opposite have tried to make it. I support and congratulate the Government on the step which they have taken.
The hon. Member for Gloucester (Mr. Diamond) spoke about advantages and disadvantages. I thought that he stressed the disadvantages too much, but did not sufficiently stress the advantages. To my mind, the advantages on this very narrow issue—and I want to bring it down to the narrow issue—is that we were supported afterwards by moves into convertibility by other Western European countries. I do not know what sort of speech the hon. Member for Loughborough would have made this evening if we had not taken other European countries with us; if we had moved into the position as it was before, when we were the only country to take this step and other continental countries did not follow. That is an advantage which both sides of the House must accept.
The second advantage which was also touched on by the Chancellor was that we are increasing the resources of the International Monetary Fund and also creating increased resources in the new European Fund. I believe that those advantages must lead to increased liberalisation of trade, greater production, and, therefore, expansion.
When I saw the Amendment of the Opposition on the Order Paper, I wondered what arguments they would adduce for voting against the Bill and against the Government's decision. I listened most carefully to the arguments. I do not believe that they were directed against the Bill or the Government's decision, but against two bigger and wider issues. One is the question of convertibility as a whole, and further moves which may take place in future and, so to speak, stake a claim against that in advance. The second is the one with which the Leader of the Opposition ended his speech, which was an attack on speculators and speculating.
I do not think that anybody on this side of the House has a brief for speculators and speculating. Speculators give very little service to the community. As I should like to point out to the House


later, I believe that the speculator's paradise is a fixed sterling rate with the possibility of devaluation coming after it. That is when the speculators make their money. But I cannot see why that is a reason for voting for the Amendment against the passing of the Bill.
When we look back on this debate in, possibly, a year or two's time, I think that the general feeling will be that it was a pity that the Opposition divided against the Bill. What else would right hon. Members opposite have done in the same circumstances? That is the question which we have to ask ourselves. I understood the Leader of the Opposition to start with a plea for the continuation of the E.P.U. agreements. I do not know whether the right hon. Member for Huyton (Mr. H. Wilson), when he winds up for the Opposition, will deal with this point, but I ask him: is it really the considered opinion of hon. Members opposite that it would have been possible to have maintained the E.P.U. arrangement on 28th or 29th December, last, whether that was a practical proposition? I suggest that it was not a practical proposition.
First, we all know that the position in France at that time was particularly serious. France's Budget deficit was running at about I billion francs, or the approximate equivalent of £1,000 million, which was an extremely serious position. There were inflations, enormous quota restrictions, and, on top of that, the French Government were breaking their liberalisation clauses in the Treaty of O.E.E.C. They had exhausted their credits with the E.P.U. and the debt at that time was 476 million dollars. Despite that, France was talking about discrimination against the other eleven members of the O.E.E.C. at that time under the Common Market trading arrangements. That was certainly restrictionist. We also had the action of the West German Government which should, admittedly, have been operating in the spirit of E.P.U. but was not—that Government had credits of 994 million dollars.
At that time, the E.P.U. was not operating, and I do not think that the Opposition can now say that it would have been possible, in those circumstances, to have continued that sort of arrangement. The Government, there-

fore, had to take the steps they took, and it is almost irresponsible, in my opinion, for right hon. and 'hon. Members opposite to vote against the Bill tonight. They could have had exactly the same Second Reading debate without going into the Division Lobby afterwards.
I want, secondly, to congratulate the Government on taking the initiative when they did. I seemed to sense almost an attack by the Leader of the Opposition on the Chancellor of the Exchequer for having taken the initiative. I do not think that the Government should be in any way despondent about their action. In my view, they might have taken this action earlier, but that would have inconvenienced the French Government considerably. I think that they took a very realistic view, and only brought forward these proposals when they did, which was at a time most convenient for the French Government.
This view is supported by an article in Figaro of 29th December, which more or less admits that the initiative in convertibility came from the British Government; the Government of Bonn decided to keep in step with London, and the de Gaulle Government could do nothing but accept convertibility for France. As a result, I think that we have a far better working arrangement for the expansion and increase of European trade than we would have had had we tried to go on with the Common Market arrangements, a broken E.P.U. Treaty organisation, and the difficulties flowing from it. In other words, we are now doing exactly the opposite to that of which we are accused in the Amendment; we are working for greater expansion and further trade negotiations.
Many hon. Members have spoken of wider convertibility, and if I may be permitted to say something on that subject I will be able to state views that I have wanted to express for some time. First, the value of sterling is not what we may peg it at, but what people abroad think that it is worth. The value of the £ is alternating up and down all over the world at different times. We may try to peg it officially at a certain rate, but that is an artificial rate.
The danger from speculation comes when world feeling against sterling drops, and we have to maintain it at an artificially high rate. It is when world


confidence in sterling falters that the danger of speculation arises. Therefore, to get away from the fear of speculation and the possible drain on gold and dollar reserves the ultimate answer must be a free convertible rate for sterling.
At the beginning of his speech, the Chancellor of the Exchequer quoted from speeches that have been made on both sides of the House to show that both parties believe, in the long run, in convertibility as the ultimate goal; yet the whole tenor of speech after speech from the other side has shown the party opposite to be very frightened of convertibility. We seem to be seeing from the party opposite a reversion of policy against convertibility as a long-term objective. I do not know whether there will be a reply on that from the Opposition Front Bench tonight, but I think that that is the impression that the country will get from this debate tonight.
I would join issue with those who are frightened of convertibility as an end in itself. At present, the United States Government have had their gold reserves depleted, either by foreign aid or investment abroad, to the tune of 2,240 million dollars. We, in the United Kingdom, may have gained of that very nearly half—about 1,000 million dollars. That must be a helpful factor in the matter that we are now discussing.
Next, as has been mentioned already, we have a surplus on our international trading account this year of £600 million. The Leader of the Opposition is always very quick to try to play down the part which the Government have taken in this matter, but I believe that it is an example of how Conservatism does work. We are now seeing the results of good administration and sound finance. Of course, the position of raw material prices abroad is another point in our favour, and should not be played down.
Again, as has also been mentioned, our gold and dollar reserves stand at £1,100 million. There is no need to run that down. It is a very creditable achievement. My point is that our position is basically far more stable than it was two, three or four years ago, when we had the Suez crisis. A lot of what is termed unstable money went out, and was replaced by loans from various international banking organisations, the Monetary Fund, and other bodies.
That is a much more stable form of holding of investment of our gold and dollar reserves than the gentlemen who are quick to withdraw when anything goes wrong. That is something the Government must bear in mind; that if we have to face a future temporary setback the people now holding the gold and dollars for us are much more likely to leave them there than take them out.
On top of that, we have possibly 900 million dollars worth of Government holdings in investments in the United States and Canada. If we put those two together—the Government holdings in the United States and our gold and dollar reserves fund—we get much nearer to the figure of 6,000 million dollars that the Leader of the Opposition gave as the figure at which he might consider convertibility. Therefore, if we do not merely pay lip-service, but appreciate the position vis-à-vis the gold reserves in America and here at present, plus our balance of payments position, I think that we are not far from the time when we can take the next step forward; and I believe that that will be not a restrictionist but an expansionist step forward.
I have not very much knowledge of the City of London, but from my experience of the business world my feeling is that the rate might well go over three dollars if it were allowed to find its own level at the present time, and that would be a very great advantage to this country.
The Opposition Amendment seems to be an example of what I might call Socialist double-talk. What hon. Members opposite really want is restriction and control of finances and currency. With that must come quotas, and after quotas—whether they like it or not—rationing. That is the form of restriction they really want, yet, at the end of their Amendment, they talk about expansion.
I believe that what happened when we had to put the Bank Rate up to 7 per cent, was that the Opposition found that the expansionist cry was a popular one, and I think that a number of people in the country were possibly taken in by the idea that Socialists might be expansionists. Of course, it is not so. We are now, in the arguments we have heard today, back to what I have been very glad to hear, and that is that Socialism must be restrictive. Socialist


financial policies must be restrictive; and from this debate I think that the country will learn that Socialism and restriction go hand in hand, and Conservatism and expansion also go hand in hand.

8.40 p.m.

Mr. Austen Albu: The hon. Member for Sheffield, Heeley (Sir P. Roberts) concluded his speech with a wonderful peroration, I must say, but, of course, what Socialists have always said is that finance shall be the servant of industry and the people and not their master. In so far as we need a restriction of financial activities it is so that we can have an expansion of industrial activities.
The hon. Gentleman asked—and I am sure that my right hon. Friend will reply to him—what our attitude towards convertibility is. I think the answer is roughly that given in The Times in its leading article today, that when we are in a position to undertake full convertibility we shall undertake full convertibility. We are not so yet. Moreover, we think that the steps which the Government have taken so far have been taken prematurely.
The hon. Gentleman asked us why we were by our Amendment attacking the Bill, and he put forward some quite reasonable arguments about the position of E.P.U. and its demise, but if the hon. Gentleman had heard the speech of my right hon. Friend the Leader of the Opposition he would have known that my right hon. Friend's argument was that the ending of E.P.U. came after the decision to move further into convertibility, and that it was the move into convertibility which we are attacking in our Amendment rather than the ending of E.P.U., although that in itself was a very regrettable thing.
I think that in this debate the difference between the two sides of the House lies in the meaning of the words of the Chancellor of the Exchequer, "Britain depends on international trade." What do we mean by trade? I think that hon. Members opposite are still thinking in terms of the nineteenth century, when the City of London was the main financial centre of the world, based, as it was then, on Britain's being the main provider of finance for capital investment in the world. This position no longer exists. We are now a debtor country

and we now have difficulty in maintaining the present level of investment abroad, and yet, as my right hon. Friend has said, at the same time we are not only seeking to finance the sterling area but launching into the financing of the trade of the rest of the world.
Hon. Members opposite are still looking upon this matter from the point of view of prestige. The right hon. Gentleman the Member for Blackpool, North (Sir T. Low) talked about faith and words like that and prestige and emotive language of that sort, are often used when we ought to be looking at what the actual effects of any change in financial policy will have on the people of this country. Undoubtedly we have not today the resources to maintain the City of London in the sort of prestige it had before the war. Indeed, in financial and economic terms the value of the transactions of the City is very much less than it used to be. Its contributions to our foreign exchange earnings and, therefore, to our balance of payments is by proportion much less than it was before the war, and, as my right hon. Friend said, even to the foreign exchange market now restored, it will only be worth about £100,000 a year and even with the other services of the City, it will comprise only a relatively small part of our foreign exchange earnings. Certainly the earnings of the City, which have been restricted by our policies so far, are not going to bring us any very great expansion in earnings.
The truth, of course, as the House really knows, is that the strength of our economy depends today, as to more than 90 per cent., on physical exports, and the whole object of policy must be to expand the competitive power of our industry, not only by expanding investment in plant and machinery so that it may improve its productivity and therefore its competitiveness but also in encouraging continual change and innovation so that we are in a competitive position to offer the most advanced types of goods in the world. As long as we can maintain those exports and as long as we can maintain some reasonable trade balance and as long as people want our goods, I must say I find it difficult to see why our currency should come into danger.
I have sometimes had a dream, which may possibly give some of my right hon. Friends on the Front Bench the shivers, but which a private Member of the back benches can have, that when the balance of payments is comparatively good and our reserves are not looking as bad as they have in the past and our trade is booming and we are selling our goods and they are competitive, we might allow the £ to go.
I really should like to see what would happen in those circumstances. Of course, if the balance of payments were adverse, and our industry non-competitive, it would not be an occasion to do this, but I am talking about a case like 1957, when there did not appear on the face of it to be a real economic reason for a run on sterling. In those circumstances, I should like to see what would happen if we allowed the run to take place. This would show up some of the gentlemen who gamble on sterling. They would find that they would very soon burn their fingers when it came to getting sterling to pay for imports from this country. It may give my right hon. Friend the Member for Huyton (Mr. H. Wilson), and perhaps the Paymaster-General, the shivers but it is something which we might try one day, though it depends upon our maintaining investment at home, upon an expansion of industry, upon innovation and change in industry, and a highly competitive position in which people want our goods and must acquire sterling to buy them.
The Government congratulate themselves on the general liberalisation of trade in the world which has taken place in the last few years and upon their contribution to it, including the removal of restrictions on dollar imports. But what a slap in the face they have had—first at Montreal from the Canadians, and secondly over the turning down of the English Electric tender for the Greer's Ferry turbine contract in the United States. That showed that in certain circumstances even a country as wealthy as the United States will re-impose restrictions on trade for undoubtedly protectionist reasons.
The areas of the world where trade liberalisation is safe are very limited indeed. I believe that the Western world

will not continue much longer to accept policies which hold back a country's own economic expansion at home, in face particularly of the competition—I do not call it the threat—that is coming from Russia. If there is in the future in the countries of the Western world a conflict between liberal trade policies and full employment and expansion, I believe that those countries will choose expansion, and this may mean again restrictions on trade. Ideally, the greatest expansion of trade would take place with complete liberalisation, but if we do not have complete liberalisation and we have a situation in which affairs like that of the English Electric tender and what happened at Montreal can again take place, undoubtedly other countries will have to take similar action.
That is not the least of the arguments why it may be dangerous to expose our currency to the full range of convertibility It may well be that the extent to which we have made our currency convertible has already made it more difficult for us to trade. On this side of the House we agree with those who believe that the most important thing is the expansion of industry, industrial investment, and full employment, and we believe that it is the Government's policy in moving towards convertibility that has made it more difficult for them to undertake such a policy in this country.

8.49 p.m.

Mr. Harold Wilson: This has been an interesting and serious debate, as I am sure the Paymaster-General will agree. It has been rather difficult to sort out the exact theme of speeches made by hon. Members opposite. There have been some who have regarded the convertibility decision as the crowning glory, the last triumph of the successes of Tory freedom in the overseas economic sphere. There have been others, not least the Chancellor of the Exchequer, who have wanted to play it down. They have said that it does not really make any difference—it is a continuation of what was announced in the House on 24th February, 1955. I will do my best, in the time that I hope to have before the Paymaster-Genera] replies, to try to draw some of the main threads of the debate together.
The Chancellor began by speaking as though the Government's action was merely a fulfilment of policies initiated by the Labour Government. He spoke as if this had been a continuous process and


there was no room for controversy; that, after all, we started it and were committed to it. I want to remind the House again that the Labour Government insisted that there could be no decision to introduce convertibility until three conditions were fulfilled—not one but three.
The first was that our gold and dollar reserves should be a good deal higher, as my right hon. Friend the Leader of the Opposition made clear this afternoon. When he was asked by the Americans in 1950 to elucidate this, he said that the reserves should be double the then level—that is, something like double the present level. The second condition he laid down was that we must have adequate guarantees that markets would not be closed arbitrarily or suddenly against British goods. Thirdly, we insisted that the balance between the dollar area and the rest of the world had to be right. I want to say a word or two about each of these three conditions because those were the conditions we laid down for convertibility.
First, on the adequacy of the gold and dollar reserves, it is true that the reserves have improved over the past year but they are still far from adequate. They stand today at just under £1,100 million, but they are still less by £71 million than the figure at which they stood in October, 1951, which was actually £1,167 million. So they are still £71 million below the figure at which they stood when this Government took office.
Of course, they are not all free reserves. They would be a good deal lower if it were not for the loans raised by the Prime Minister, when he was Chancellor of the Exchequer, to pay for the Suez operation, which he so irresponsibly commended to his colleagues, despite the responsibility he was supposed to carry for the defence of the £; not to mention the further borrowings made in 1957 to stem the speculative flight from sterling of which we have heard a lot this afternoon.
Therefore, and I put this point to the Chancellor, the present level of reserves is to some extent an illusory one because of the amount of borrowings included in them, borrowings which have to be repaid. After the Suez "binge" comes the reckoning. When the Chancellor finally

summons up courage to answer the questions that were put to him about the terms of the Anglo-Egyptian financial agreement, we shall know that about another £50 million or £60 million have to be paid for that. But that is not the reckoning I am dealing with tonight.
The reckoning I am dealing with tonight is the repayment of that borrowing. As I understand the figures, about 800 million dollars, nearly £300 million, have to be paid in the next three years. Indeed, as we were reminded this afternoon by the Chancellor, 200 million dollars, or £70 million, have to be repaid by next April. So, out of the present level of reserves, we have to set aside £300 million for more or less immediate debt repayment. Then there are all the other factors. The Germans have deposited £75 million with the Bank of England for debt repayment covering the next ten years. Incidentally, that debt repayment was a repayment of debt incurred when the Labour Government were in power.
We used to hear a lot then about unrequited exports. Some of these created a debt obligation on the part of Germany, and the present Government were glad to have that repaid by one payment covering ten years in order to deal with the crisis that they had created. The Germans have also made heavy advance payments for purchases of arms which have to be met out of our future national production. Again, there has been heavy sterling area borrowing, especially in the last year or two, and this, also, has to be repaid.
Our present reserves, therefore, nominally standing at about £1,100 million, if we set aside the amount which has to be earmarked for early debt repayment, come down to about £800 million, and that is a long way short of the figure that this country had in October, 1951. Yet we said at the time that this figure, as my right hon. Friend repeated this afternoon, was much too low a figure to justify any rash moves towards convertibility. I do not need to remind the House of the increase in the price level since 1951 and the increase in the volume of trade which has to be financed with sterling. All this means that in real terms the reserves are still lower as compared with 1951, not much more than half the real value of the reserves which we bequeathed to this Government in October, 1951.
I will put it another way to make it clear to hon. Members opposite. In 1951, the reserves, measured in terms of the volume of sterling area trade which they had to finance, represented about 40 days' volume of trade, not very much. It shows the narrow margins on which we have been operating since the war. Today, they represent about 30 days of sterling area trade, and if we set aside that amount which has to be earmarked for debt repayment, our reserves today represent only about 22 days of sterling area trade, which we feel, is much too narrow a margin for making rash experiments of the kind that we have been debating today.
Our second condition was that we must be guaranteed against the sort of situation which we had to face in 1947, when countries, finding the £ convertible, suddenly closed their doors to British goods and hurriedly converted any sterling they had earned into dollars or other allegedly desirable currencies, as we remember from that move in 1947. For instance, the Argentine sold its meat to us and then closed its doors to British goods so that it could convert into dollars the pounds it had earned from the sale of meat.
What assurances have we against discriminatory action of this kind? I agree that the O.E.E.C. agreements, the liberalisation agreements, provide some sort of assurance against such action. I was glad that the Chancellor fairly paid tribute to the fact that the great move towards liberalisation in Europe was proposed by the Labour Government to the countries of Europe.
It is still possible for the kind of discrimination which I have mentioned to happen elsewhere. Indeed, the Government have so weakened Commonwealth trading links that New Zealand and Australia repeatedly impose restrictions on British exports whenever they get into balance of payments difficulties. If they do it, what assurance have we that other countries will not apply similar restrictions? Even in Europe, what about the Common Market? All the efforts of the Paymaster-General—we agree that he has not been helped very much by the President of the Board of Trade—have only produced a situation in which, as things are at the moment, we must expect not less but more discrimination against us in Europe.
I turn to the third condition that we laid down in 1951, the dollar balance. This problem has been with us ever since the war, but it is only within the past few months that there has been a flight from the dollar. I was surprised to hear so many right hon. and hon. Gentlemen today who were so intoxicated by this unusual sensation of seeing the dollar weaken that they think that they can base our future policies for many years ahead on this possibly very temporary phenomenon.
As my right hon. Friend the Member for Battersea, North (Mr. Jay) has said, this is like throwing away one's umbrella just because the sun has been shining for a couple of hours. We know that it comes as a surprise to the Minister of Transport that it sometimes rains in Lancashire, but surely that sort of attitude is not typical of the expert advisers in the Treasury. Do these expert advisers think that a weak dollar is likely to be a permanent phenomenon? This decision seems to be based on that assumption.
As my right hon. Friend said this afternoon, one important factor redressing the balance between the dollar world and the rest of the world has been the heavy volume of credits provided by the United States to sterling area countries, especially in the last year. Many countries, such as New Zealand, have in the past few months been driven to borrow in New York by the high interests rates which would be charged them by this Government. I should like to ask the Paymaster-General whether the Government expect that this flow of capital from the dollar area to the rest of the world will continue at the rate we have been witnessing over the past year.
It seems as if the Chancellor is very confident about the world dollar situation. This afternoon he foreshadowed decisions to open the British market to dollar consumer goods. I think that we must warn him about any rash action of this kind. As The Times has argued, time and time again, it is quite impossible to measure the elasticity of demand for some of these American dollar goods. We have seen over the past few years, since the Government liberalised the import of dollar manufactured goods into this country, a phenomenal increase in the American manufactured goods, at a time, over the same period, when we have not


increased our imports from Commonwealth countries at all.
We saw what a sudden leap there was in the importation of tinned salmon, which was the one real result of the Chancellor's conference in Canada last year. No one can say what will happen if the Chancellor says that American motor cars can come in. There will be some people in this country daft enough to run Cadillacs on purely prestige grounds.
This is a very risky measure. I want to put this to the Chancellor very seriously, and I would put it to the President of the Board of Trade, for what good that would do, if he were here. The Government really ought to make it quite clear to the Americans that they are not going to make any further move in opening British markets to American manufactured goods until we have some assurance about the Americans opening their market to British goods.
The decision announced last week about the English Electric deal came as a shock to hon. Members in all parts of the House. This really is shabby treatment as between Allies. English Electric, like other companies, was invited to tender and although its bid was 70 per cent, below the lowest American bid of the Baldwin-Lima-Hamilton Corporation it was rejected on the pretence of national security.
We all remember that the Prime Minister came scurrying back across the Atlantic last year talking about interdependence with the Americans in economic and military matters. He was so full of this interdependence that he fell over himself to give the Americans missile bases in this country, yet the American definition of interdependence is such, in spite of all the talk about exchange of nuclear information, that they claim protection on grounds of national security and that security is involved in the damming of a river in Arkansas.
The British Ambassador in Washington who, if I may say so, always puts the British point of view with clarity and firmness, was quite right in saying that if the Americans are really putting out that story they had better tell it to the marines, because sailors will not believe it—and, frankly, I have doubts about the marines. We were then told it was not a question

of military security but that this company had some large machine tools—jumbo machine tools—and if those tools were not given work to do they would wither away and not be available in times of national emergency.
This has been a shocking case and I think that hon. Members in all parts of the House will agree that the Government should seek an assurance which will be honoured and is not just words that can be set aside by some bureaucratic American Department, that before we give any thought to removing restrictions on American dollar consumer goods the American market will be open to British goods. I am sure that if my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) had spoken in the debate he would have made exactly the same point about the iniquitous wool tariff quota imposed by the Americans last year.
Therefore, the three conditions for convertibility which we laid down in 1951 have not been satisfied, and we have to ask whether it was right to take this decision now. The Chancellor said that the timing was a matter of judgment. We think that it was reckless and bad judgment. If the Chancellor had listened to the words of wisdom for a little while, instead of to the words of the Economic Secretary, who has obviously misled him so much, he would not have done this. We believe that this reckless decision was the result of the complacency which utterly obsesses the whole Government machine, resulting from the temporary fall in commodity prices and the flight from the dollar.
We have had this complacency after every economic crisis with every recovery. I once gave the House a series of quotations of Ministerial pronouncements after crises in which it was said how everything had been solved. I particularly remember the Lord Privy Seal's broadcast in the 1955 General Election when, on 19th April, he referred to the Bank Rate increase of February, 1955, and said:
Thank goodness we took action in time…already in the field of the exchanges our action has produced distinct results, which have taken the shape I had hoped for.
Within three months of that complacent statement, we were facing a sharp run on sterling. Within six months we had


the autumn Budget. Within three years we lost 2,300 million dollars from our gold and dollar reserves.
Whatever complacency the Lord Privy Seal may have shown in recent months, this complacency and fecklessness have grown beyond all bounds. The extreme case is that of the Prime Minister. I am sorry that he is not here tonight. [An HON. MEMBER: "He is on the by-pass."] I am delighted to hear it. I always thought that he had been treated rather shabbily in being invited to the opening and not to the closing of the Preston by-pass. He showed the supreme example of self-satisfaction and complacency when he was answering Questions yesterday, believe it or not, as Prime Minister. Referring to the deflationary decisions of September, 1957, he said:
I feel that the action which we took was necessary and alone provided the basis for the great increase in credit which we are now able to give."—[OFFCIAL REPORT, 27th January, 1959; Vol. 598, c. 886.]
I emphasise the word "alone." Not only was it not alone, but it had nothing to do with it.
Some of us forecast last spring that it was Government strategy so to run down the economy that they would reach a point at which they could present an election Budget as an economic necessity. The improvement in our balance of payments is due and is solely due to the fall in world commodity prices. The Prime Minister claims that it is due to the policies of the Government which alone have provided the basis for these recent essays in re-expansion.
Does the Chancellor agree with the Prime Minister's statement? Does he agree with the statement that it was Government policy which produced this situation, or will he not acknowledge, as, in an honest moment, he once did, that the fall in commodity prices has been responsible? Will the Chancellor tell us? This is an important matter.

Hon. Members: Answer.

Mr. Wilson: The House is being asked to vote on a very important economic matter and we ought to know what view the Government take in this important matter of diagnosis.

Mr. Amory: I have often made it perfectly clear that the fall in our import prices has helped us considerably and that

the effects have been reinforced by sound Government policy.

Mr. Wilson: Yes. The Chancellor will be able to answer tomorrow for his repudiation of the Prime Minister.
In fact, the Chancellor, so far as he has gone, has not given us the true facts. I am sorry to have to weary the House—and particularly the Chancellor—with one or two figures, but I think it essential that these figures should be given. The visible trade gap in 1958 was £424 million, an improvement of £189 million on the 1957 figure of £613 million. So far, I am sure. I carry the Chancellor with me, because these are Government figures.
Last year our imports were £3,780 million. Those are Government figures which I hope the right hon. Gentleman does not deny. Again, according to the Government figure, import prices last year stood at the index figure of 99 compared with 107 the previous year, a fall in prices of about 8 per cent. I am sure that the Chancellor will agree that if prices have not fallen last year—if I may put it in arithmetical terms—our imports would have been
107/99 X £3,780 million.
I hope I am still carrying the Chancellor with me. I see that he is hurriedly doing calculations on the back of an envelope. I can assure the right hon. Gentleman that the answer which he will get, finally, is a figure of £4,085 million.
That is what our imports would have been last year, but for this adventitious aid of falling prices. That would have been £305 million more than it actually was. So, against an actual improvement in the trade gap of £424 million, we would actually have had a gap of £729 million. To put it in another way, the improvement in the balance of payments for which the Prime Minister so modestly took credit yesterday was £189 million, as I have just shown. But the effect of more favourable import prices was £305 million. So much, therefore, for the Prime Minister's claim.
What does this decision about convertibility mean in practical terms? First, for Europe. That was fully dealt with by my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) this afternoon. The Government, having embarked


a year ago on a policy of internal deflation, have, I am sorry to say, been the moving genius in this dash towards international deflation. My right hon. Friend made very clear that the European Payments Union provided a credit house for both increased trade and production in Europe. It was able to liberalise trade and take the chance of increased production without the nagging fear all the time of a balance of payments crisis. Now, under this new European Monetary Agreement, credit will be available only case by case and probably on very harsh terms, because the terms will be controlled by the international deflationists, the central bankers, and the rest of it.
I would ask the Paymaster-General—if he be the right person to ask—what about the position of France? France will be more than ever dependent on German economic aid. It may be that that will suit their political purposes, I do not know, but they have certainly lost a valuable economic aid with the going of E.P.U., and are in danger, as a result of what this Government and what the French and Germans have done, of becoming economically a German colony. I hope that the Government realise where this decision will lead them.
What does it mean for Britain, and for the sterling area? We are told that it is only a little change; that the real position was taken in 1955, and that the events of 29th December were merely conferring a de jure recognition of a situation which had long existed on a de facto basis. That is not what we were told at the time. It was then put forward as a purely technical move when my right hon. Friend and I criticised it as backdoor convertibility. Whatever changes there may have been, it is clear that the greater part of the loss of gold and dollars in 1956–57 was on the backdoor support of a transferable rate.
What is the basis of our anxieties? I should make clear that these anxieties go much wider than among members of the Opposition. They exist among people who do not agree with us politically. They share our anxieties about the convertibility movement. The main thing is that it makes us more vulnerable to a speculative crisis. The £ in London will be converted, as of right,

into dollars, or other currencies without even the cushion of a drooping transferable rate.
The Chancellor may say that we were following the rest of Europe. [Interruption.]My right hon. Friend the Leader of the Opposition made it clear this afternoon that there was reason for thinking that the British Government were in the lead in this matter of European convertibility. Even if it is true that we had to follow the rest of Europe, which is very surprising, sterling is in a very different position from the currencies of other European countries.
No one holds French francs beyond his immediate trading needs. Sterling is held because it is an international currency and nearly half the world's trade is financed in sterling; so the holdings are considerable. If the situation occurred at any time that traders suddenly wanted to hold some other currency, dollars, Swiss francs or German marks, sterling will have to bear the brunt which most other countries would not have to do.
What happens if another run occurs? What this Government will do is to say, "Confidence is in danger and can only be met by deflationary methods in this country, involving restriction of production and an attack upon employment standards". [HON. MEMBERS: "NO."] That is what they said in 1957 before we had convertibility, and they will be forced to say this, irrespective of the state of production and employment in this country. This was the theme of a statement put out today by the General Council of the T.U.C. I hope that the Chancellor will study the statement, because he received a letter in October warning him of the consequences of convertibility. The General Council has made it clear that if confidence in sterling weakens, and the Government lack exchange control to defend the reserves, they will no doubt argue that forces outside their control compel them to restrict economic activity and cause unemployment.
That is the fear of the T.U.C. and represents the nub of the argument. It is a fear that exchange controls will be cast aside and that, at the margin, full employment and increasing production


will be swept aside for considerations of international finance, and even of financial prestige. My hon. Friend the Member for Cheetham (Mr. H. Lever) said this afternoon that all these financial manœuvres were just a charade if we did not mobilise the full production power of the nation.
The decision of the Government of September, 1957, to sacrifice production and employment to the obsolete financial shibboleths urged by the right hon. Member for Flint, West (Mr. Birch) has gravely weakened this country. [HON. MEMBERS: "No."] We have often said, and we said at the time, that this was like the old eighteenth century quack doctor whose only remedy for any kind of disease was blood-letting, which was ultimately weakening.
What is the position in Britain? Production in Britain today is lower than in 1955 at the time of the last General Election. [Laughter.]Let me ask hon. Gentlemen who laugh whether they can name any other country in the world of which it is true that its production today is lower than it was in 1955. This is the country that the Prime Minister told us, on television, when he became Prime Minister, was to be made "Great" Britain, yet not one hon. Member in any part of the House can think of a single country being worse off than we are. They have had plenty of time to answer and I should have thought hon. Gentlemen would have thought of one now.
Take the figures of unemployment. The registered figure is 200,000 up on a year ago, but the registered figures are only part of the story. There are workers on the guaranteed week for whom no work can be found. Many miners are being kept at work by the nationalised Coal Board. About 75 per cent, of our factories are working below capacity. That is one reason why, if we get an expansion of production it may not lead to a corresponding expansion of employment. There are school leavers who cannot find jobs when they leave school, in this "Opportunity State" that we hear so much about from the Tories.
Apart from that, and apart from the national figure, some areas are very badly hit, yet the Government are putting out complacent statements. The Minister of Works, at a big employers' dinner, said that we should have boom conditions by

the end of the year. Is that the Chancellor of the Exchequer's view? The Parliamentary Secretary to the Board of Trade said at Exeter that he thought the Government's measures to bring work to the depressed areas would soon be showing results. It sounded like the speech of the pre-war Tory Minister of Agriculture, who said that the agricultural policy of the Government was showing results in a number of fields. There will be no solution of this local unemployment problem unless there is a real head of steam in the economy, and the Government dare not create that head of steam because of fear of foreign repercussions.
The right hon. Member for Blackpool, North (Sir T. Low), in a characteristically agreeable speech, quoted our statement that the Labour Party will make the defence of the £ the first priority of our overseas economic policy. We utterly reject the Tory notion that the £ can be strong only if the economy is weak. I say that for two reasons. If the economy is depressed, if industry is working below capacity, then costs are increased. Furthermore, what is of great importance, productivity cannot increase unless industry is expanded. Secondly, if the economy is depressed we fail to extend and to modernise our economy and, in the long run, we lose ground to all our competitiors, be they Germany, the United States, the Soviet Union, Japan, or for that matter, China.
We believe that we could have a strong £ and a strong economy only on the basis of controls and expansion. The right hon. Gentleman seemed to find the idea of controlled expansion entertaining. Under the Government we have stagnated for four years. We need expansion—does anyone deny that?—but that expansion must be controlled, because without controls and purposive planning a free-for-all expansion will mean inflation, just as it did under the Lord Privy Seal.
The slack incompetence of an unplanned economy must give place to the disciplined efficiency of rational organisation and control.
[Laughter.]
I am sorry that hon. Members opposite do not accept that and find that thought shocking or amusing, because it is taken from a chapter entitled "Expansion" written in his expansionist days by the Prime Minister, in a book published in 1939, oddly enough by Macmillan.
Our Amendment says that the Government's decisions make
more difficult the achievement and maintenance in Great Britain and Western Europe of industrial expansion and full employment.
We are not trying, in the Amendment, to over-dramatise the situation. We do not say that this is the same as the action of the then Conservative Government, in 1925, in returning to the Gold Standard with the wrong parity although there is perhaps some similarity of motive—the feeling of prestige, the idea that the £ must look the dollar in the face and the rest of it. That decision in 1925 condemned whole industries, especially coal and cotton, to mass unemployment.
We do not say that this decision will have the same effect. For one thing, it is not of the same parity, but what we say is that the Chancellor's freedom to take the necessary measures to expand economy will be limited. If we need lower rates in this country for employment loans and, at the same time, there are rising rates in America, the Chancellor will be inhibited from taking the necessary measures because of the difficulty of chasing "hot money".
The real difference between us has come out plainly in the debate. We believe that both nationally and internationally finance, as my hon. Friend the Member for Edmonton (Mr. Albu) said, must be the servant and not the master of production, trade and employment. They look at it the other way round. They see nothing wrong with a system in which British financiers, as in September, 1957, could almost bring this country to its knees by freely transferring British owned capital out of the country, whether via Hong Kong or in other ways. The gentleman who said that it was "anti-British, but it makes sense" will find it just that much easier to do it again under convertibility.
I will explain what we feel to be wrong about these decisions—the kind of decisions taken in September, 1957, taken "on the grouse moor" and all the rest of it. What was it that was said? "Nigel was very depressing". What is wrong in our eyes is that these decisions led to unemployment a year later in Liverpool, Llanelly, Greenock and—I am sorry that the Prime Minister is not here—Stockton.
There is no middle way between the two views which have been expressed in the House, but I hope that we can agree on one point, whatever difference there may be about method. Even so, we certainly feel that the record of the present Government is pathetic in that? the £ today, after seven years of uniquely favourable international economic conditions, is only twenty-nine thirty-secondths of an American cent higher than it was in 1949, and we have avoided disaster and devaluation twelve years after the end of the war only by massive borrowings and a defeatist policy of industrial stagnation—twelve years after the end of the war, not two years.
Hon. Members are entitled to reject the proposals which we have put forward if they wish, but we have the right to demand that they do not bring the £ into their pre-General Election manœvurings or tactics. I know that I need not make this appeal to the Chancellor, but we need to make it to Lord Hailsham and certainly the President of the Board of Trade, if anyone were ever in danger of taking him seriously. I want to make it plain that even over Suez, when we fundamentally disagreed with the Government's policy, we rallied round the Government to the support of the £. [HON. MEMBERS: "Oh."] I challenge any hon. Member to produce any evidence to the contrary. In September, 1957, my right hon. Friend the Leader of the Opposition went on record with a speech strongly calculated to maintain the strength of sterling. [Laughter.]I know that the strength of sterling is a laughing matter to some hon. Members opposite.
If they are thinking of using it in the General Election, I remind them that talk of this kind is not only unpatriotic and anti-British but is fundamentally undemocratic. It means that whatever decisions the British people may take in an election, some people are relying on their friends at home and abroad to exercise a right of veto. As my right hon. Friend said, they will be voting with their bank balances.
This kind of talk can be a boomerang, as the right hon. Gentleman knows, and that is why we call on him to exercise his authority over his colleagues to stop it, because, as my right hon. Friend made clear this afternoon, the resources of


civilisation are not exhausted. I hope that it will not be necessary to deal with a situation in the way that he mentioned, but I am sure that the whole House, in a somewhat cooler mood, would agree that we cannot tolerate a situation in which the economic destinies of this country are to be dictated not by the Government, not by the House, not by economic realities, but by decisions taken for the sake of a quick and unpatriotic profit at the expense of sterling and of the employment of our people.

9.29 p.m.

The Paymaster-General (Mr. Reginald Maudling): We have had two lengthy speeches from the Opposition Front Bench, but, if I may, I will concentrate on the speech of the right hon. Gentleman the Leader of the Opposition, for while the right hon. Member for Huyton (Mr. H. Wilson) made his speech sound more amusing in some places and more offensive in others, I do not think that it added anything to the argument.
I should like to sumarise what seemed to be the main point made by the Leader of the Opposition. He said that the Government are taking a risk with sterling and are placing new restrictions upon the economy in order to create more profitable business for the City of London and in order to hamper a Labour Government. I think that that was the accusation. [Interruption.]This was the latter and less serious part of the right hon. Gentleman's speech. If he looks at his speech tomorrow he will find that that is so. The simple answer is that that is untrue and unfounded, because in our view the steps which we have taken will make it not more difficult to defend sterling in times of strain but more easy.
There are two reasons for that. First, sterling being officially convertible, the overseas holder knows that he can convert it if he wants to and is far more likely to leave it on deposit in London. Secondly, it is easier to defend one rate for sterling in a market operating in this country than to defend two rates of sterling, one of which is operating in markets outside this country. The right hon. Member for Huyton referred to the advantages to be gained from a drooping transferable rate. If he thinks that a drooping transferable

rate will help us more with the official rate, he ought to think again.
To make the argument that the steps we have taken will strengthen the position of sterling, I want to run through one or two agreed principles. First, the Opposition accepts, as the right hon. Member for Huyton said last year, that sterling should be given first priority in all calculations and actions. That is agreed between us. But the international value of sterling must depend upon supply and demand; it cannot be fixed by the British Government. This is particularly true of sterling in its function as international currency. This is the main fallacy of the Opposition's case. People cannot be forced to hold sterling by any amount of exchange control. They can choose other currencies and will choose to do so and are entitled to do so if they think that other currencies are sounder and stronger. Theoretically, one can block currencies, but if we block overseas holdings of sterling we cannot do that indefinitely and it will not come back again. Such a course is not supported or advocated by the Opposition.
The fact is that the strength of sterling internationally depends upon giving it value in the eyes of the foreign holder, sometimes called the speculator. It is not only the gnome of Zurich which appears so often in the mythology of the right hon. Member for Huyton. He is the man whom my right hon. Friend the Member for Flint, West (Mr. Birch) referred to—the banker and trader who needs to hold sterling in the course of his normal business and has to take a view about its future value. It is inevitable that the international value of sterling will depend on the view taken by foreign holders.
Whether we like it or not, there can be no doubt that when shaping our national policies we must bear in mind that there is overseas interest. As my right hon. Friend the Member for Blackpool, North (Sir T. Low) said, if we want to trade with, and borrow money from, people abroad we must have regard to the effect our policies will have on the valuation which they put on our currency.
Foreign holders will consider two things: first, the internal purchasing power of sterling and its probable future trend, and, secondly, the extent to which it is usable and convertible. A currency is usable only when it can be turned into


something else. If we are agreed on the desirability of maintaining the strength of the £ we must have regard to the internal purchasing power of the £ and give the greatest possible usability to sterling held externally.
It is also agreed that convertibility is the objective of both sides of the House. The phrase used by the right hon. Member for Bishop Auckland (Mr. Dalton) in his authoritative text of 1947 was "full and free convertibility", which I take it in his mind means capital as well as current account convertibility.

Mr. Hugh Dalton: Long term.

Mr. Maudling: That is the objective. It is agreed on all sides that full and free convertibility on capital as well as current account must be the aim. It would appear that the Opposition do not consider that such convertibility in principle prevents us having an expanding economy and full employment.
Thirdly, on both sides of the House we are committed to a policy of nondiscrimination by the G.A.T.T., and by the International Monetary Fund agreement to which the party opposite is fully committed—in fact, it introduced both the relevant Measures. On both sides we are committed to the abolition of discrimination, save for balance of payments reasons. The party opposite is as equally committed to that as we are.
I should now like to refer to the question of dollar imports. This was referred to by both right hon. Gentlemen opposite and by other speakers. As my right hon. Friend the Chancellor of the Exchequer made quite clear, we are working out plans for further relaxation in our quantitative restrictions on dollar imports. Nothing in this move to make sterling convertible in any way compels us or obliges us to change the programme we have in mind for the further reduction, and final removal, of discrimination against dollar imports.
When the right hon. Gentleman the Member for Huyton is so critical of the American Government in this matter, he really ought to have some regard for certain facts. Naturally, we all share the very great disappointment over the decision about the Greer's Ferry Dam. Both Government and Opposition have expressed that disappointment, but the

fact is that for the last four years the United Kingdom has had a current account surplus with the United States. In those circumstances, it really is difficult to criticise the United States for keeping out our imports. For four years we have had that current account surplus with them, yet we have been maintaining, and continue to maintain, quite severe quantitative restrictions upon United States imports.
That, therefore, is the position; that both sides of the House are committed to maintaining the strength of the £, to full and free convertibility as the final objective, and to the abolition of discrimination, save on grounds of balance of payments difficulties. It seems to me, therefore, that it is accepted on both sides that convertibility and non-discrimination are the logical basis for a world trade and payments policy. Our policy as a Government, expressed so often, and confirmed so often by successive Commonwealth conferences—and, again, only recently at Montreal—towards freer world trade movements seems to be the only policy that can commend itself, in logic, to either side on the basis of stated policy.
The argument, therefore, should really boil down solely to one of timing. Indeed, the hon. Member for Gloucester (Mr. Diamond) and the hon. Member for Gloucestershire, West (Mr. Philips Price) both, by coincidence perhaps, referred to this as a matter of a difference of timing between the two sides, and I would have thought the logic of the facts would lead to that conclusion.
That, however, is not what is contained in the Opposition Amendment. That Amendment does not really refer to timing, but gives two reasons why the Opposition consider that the Government move will make
…more difficult the achievement and maintenance in Great Britain and Western Europe of industrial expansion and full employment.
The first of these is the ending of the E.P.U., about which I should like to say just a word. We all accept that the E.P.U. has made a very great contribution indeed to trade in Western Europe, and we readily admit the part that the right hon. Gentleman had in setting it up. But it has been accepted for some time by all concerned that we cannot reconcile the continuation of the E.P.U. with convertibility—there are overwhelming technical reasons for that. Therefore, if the


Opposition accept convertibility as the objective then, once again, they accept the abolition of the E.P.U. It is only a question of timing.
What is happening in the E.P.U. is that the credit facilities had been very largely used up, although they were not entirely exhausted, and continuation depended upon the willingness of the creditor countries, particularly the Germans, to go on giving unlimited credit and taking only 75 per cent, payment in gold far beyond their quote. Whatever the right hon. Gentleman may say about creditors, whom he appears to regard as by nature immoral, it is still, I think, a strange principle to assume that we have a right to expect other people to lend us money on our terms. In any case, automatic credit has its disadvantages. It can be used, I think, by countries for continuing internal policies which are unsound. I should have thought that from our point of view, with our interest in international trade, automatic credit as a principle has its disadvantages as well as advantages.
There will be a new source of credit available both by the expansion of the International Monetary Fund—and, of course, the part of this expanded quota which is within the gold tranche is automatic credit, because it can be automatically withdrawn—and the European Fund which will be set up and which my right hon. Friend described in his opening speech. These facilities together should surely answer the question which I think the hon. Gentleman the Member for Orkney and Shetland (Mr. Grimond) asked, whether there would be adequate liquidity available in these new circumstances.
Certainly the move from the E.P.U. to the new European Monetary agreement was a move concerted between the main European countries, and I would say a word again at this moment about the extent to which the lead was taken by one country or another, because although the Chancellor of the Exchequer has already referred to this it came up again in the speech of the right hon. Gentleman the Member for Huyton.
The facts are these, that we had for some time been feeling that the time was approaching to make this move of merging the rates, but one thing was very

much in our minds, and that was that we did not want to do anything at all which would embarrass the French Government. And for very good reasons. As the House is well aware, the negotiations for the European Free Trade Area were not at an easy stage, and it might well have been said, if we took a move which would have embarrassed the French, that we were retaliating, paying them back, and acting in order to do the French harm. Therefore, for that reason, we were very loath to make any move which would have embarrassed the French Government. But we did hear, to our considerable pleasure, that they were contemplating a move of this kind themselves.
Therefore, it was possible for my right hon. Friend, in consultation with the French and German Finance Ministers, to start this general, concerted move which resulted in the developments of 29th December. I think that the right hon. Gentleman and everyone else would agree that it was a very valuable thing at this stage of European economic relationships to be able to have that concerted move forward in the currency field.
The second part of the Opposition's Amendment refers to the obligation of the Bank of England to provide gold or dollars on demand to any overseas holder. This is, of course, a misstatement of the position. Of course, we are only dealing with current sterling in the broad meaning of the word. No change is being made on capital account.
My noble Friend the Member for Dorset, South (Viscount Hinchingbrooke) referred to the travel allowance. The fact that it cannot be abolished is linked with the maintenance of control over capital movement. No doubt we all hope it can be increased at the appropriate time, but clearly we could not abolish al! control over the amount of money people can take abroad when they go abroad on holidays without automatically abolishing it on capital movement, and it is certainly not the opinion of my right hon. Friend that the time has come yet for freeing capital movement. The sums involved are very large indeed, and the time does not seem ripe for a move on this front. That is the answer to the Leader of the Opposition who raised this matter.
I think the other misunderstanding of the Opposition Amendment is this. It talks about
the acceptance by the Bank of England of an obligation to supply gold and dollars on demand".
The Bank, of course, has no such obligation. Its obligation is to provide enough dollars to support the market if the market rate looks like falling to the lower permitted level, which is, of course, a very different matter.
The main effect of this new move is that now it is a matter of indifference from the point of view of our balance of payments whether a foreign holder of sterling lives in an American account area or in the transferable account area. Surely, the basic illusion of arguments put forward from the other side of the House is that payment in something other than gold means no payment at all. That seems to be an illusion which hon. and right hon. Gentlemen opposite often cherish—that it is somehow far more damaging to pay for something in gold and dollars than in Deutschemarks, francs or lira, but the answer is that all sterling held, abroad must be ultimately redeemed either in goods or in gold, either by British exports or gold. There are no other means of settlement available.
The only other possibility is, in certain circumstances, to postpone payment and have access to credit, either automatically or not automatically. Before the recent move, all external sterling in fact had to be redeemed either in goods or in gold. Let us look at the position of the various categories of external sterling. People living in a dollar area already had free convertibility of their current sterling. Our sterling area partners have never had any limitation on the extent to which they can convert their sterling balances.
The right hon. Member the Leader of the Opposition asked earlier whether sterling area partners in these circumstances would not be freer in their demands for dollars than they would have been otherwise. The answer is "Certainly not", because Commonwealth countries have the same interest as we have in maintaining the value of sterling. They have always worked in the closest co-operation with us to that end, and the policy which has led

to the merging of rates and external convertibility has been a policy constantly re-affirmed by successive Commonwealth Finance Ministers meetings.
I cannot see, therefore, that any practical change occurs, as far as either the dollar area or the sterling area balances are concerned. There remain only the balances held by people in Europe or in the rest of the world. Practically all these could already pass through the clearing system of E.P.U. and had to be met in 75 per cent, of gold immediately, with the balance to follow. Quite apart from that, overseas holders of sterling have been able for a long time to convert it into dollars at a small discount, through the transferable markets.
Already, before 29th December, overseas convertibility of sterling had proceeded de facto to a pretty well 100 per cent, position. The Opposition tend to argue that we should not have allowed a situation to arise in which sterling was so convertible de facto, but that was completely impossible. The markets in transferable sterling started to grow up in 1947. It was impossible to prevent their growth and the party opposite, even by using a complete battery of exchange controls could not possibly prevent their growth; and those markets in the countries concerned were perfectly legal.
It is quite wrong to talk about them as black markets or grey markets. They were perfectly legal in the countries concerned but their existence, of course, meant two rates of sterling and the danger that one rate might fall. As soon as the gap between the transferable rate and the official rate became too wide, we came to commodity shunting and other devices which led to a strain on the official rate. Therefore, the decision was taken in 1955 to intervene and to assist and support the transferable rates, simply because it was in these circumstances clear that the best way and the cheapest way of protecting sterling as a whole was by this sort of policy.
I think that there was a great misunderstanding here. The right hon. Member for Huyton keeps on referring to the vast losses which we incurred in 1956 and 1957 by supporting the transferable markets, and the Leader of the Opposition referred to its great cost in 1957. In fact the support of the transferable market in 1957 cost us nothing


at all. If anything it made a profit. Over the whole period, from the first decision in 1955, the cost of maintaining the transferable rate has been negligible; and without that tiny expenditure the strains on the official rate would have been very much greater.
Therefore, the policy of 1955 has been proved up to the hilt in practice, and what happened on 29th December was the recognition de jure of what has de facto been the position for a considerable period. So I conclude this part of my argument by saying that the change we have made will make sterling stronger and will make it easier to defend sterling in times of strain than it was a month or two ago.
Now I come to the third part of the Opposition Amendment, which seemed to me to be the most unimpressive of all. This is the part about making more difficult:
… the achievement and maintenance in Great Britain and Western Europe of industrial expansion and full employment.
This seems to be not so much a declaration of war as a declaration of surrender in the economic field, because in effect it amounts to saying that in the view of the Opposition we cannot have industrial expansion, we cannot have full employment if at the same time we have convertibility. [HON. MEMBERS: "Oh."] Oh, yes. The deduction from that is that in the view of the party opposite we cannot have industrial expansion and full employment unless we also have inflation. That is a perfectly clear deduction.

Mr. Douglas Jay: Rubbish.

Mr. Maudling: Oh yes, because if we have expansion without inflation then sterling will grow not weaker but stronger, and there will be no danger whatever in convertibility.
The only possible danger in convertibility would be if inflation were expected, and therefore it clearly follows that if the party opposite think that convertibility and full employment are inconsistent, they also think that inflation and full employment are inseparable. The fact is that employment and expansion can be affected only if in the long term the maintenance of some form of control would enable us to have inflation in this country without affecting the international value

of the £, and I think even the Opposition would not seriously maintain that proposition.
The only other possibility is the effect upon employment of short-term fluctuations. I think this is very much what the right hon. Gentleman the Leader of the Opposition had in mind, but here again the £ is not made more vulnerable to speculation; it is made less vulnerable by the measures we have just taken. [An HON. MEMBER: "Why?"] That has been explained several times by my right hon. Friend the Chancellor of the Exchequer. There are several good reasons. One, in particular, is that over recent years we have had more experience of the working of the transferable rate. I think many people felt a little while ago that there was something in the idea of a cushion provided by having a second unofficial rate, but experience has shown that this is not so. As experience of the working of the two rates has proceeded, over the last four years we have realised that we can defend ourselves better with one rate than with two. That is a conclusive reason why the move has not been taken before this time.
This makes no difference to the vulnerability of sterling to speculation, because it does not create any new facility for short-term capital movements. Therefore, as the market will be in England and more under the control of the authorities, it will be easier to defend sterling against speculative movements and, therefore, the need for deflationary measures and so on, which the Opposition have so much in mind, are more likely to be less than more as a result of the measures we have taken.
So I conclude by saying that the case the Opposition have made out on timing falls to the ground completely. They have not attempted to make any case against convertibility as a principle. They have concentrated on the question of timing and they have based their arguments on the proposition that we can protect sterling by forcing people overseas to continue to hold sterling when they do not want to do so. If that were true, I grant them that their argument would be a strong one.
If it were true that by exchange controls and regulations we could force bankers to keep their balances in London


at a certain level; if, as my right hon. Friend the Member for Flint, West said, we could force all British traders to pay their bills on the last possible day, perhaps we could iron out these leads and lags, perhaps we could stop those movements which, though called speculative, are the normal movements in the flow of international trade. But it is impossible, and quite out of tune with the facts, to argue that by maintaining the inconvertibility of the £ we could protect sterling against short-term attacks more than we can do by the policy we are adopting, by giving the maximum freedom and usability to the holders of sterling outside this country.
I have endeavoured to deal with the arguments put forward by hon. Members opposite and to deal with the Amendment which they advanced in the terms in which it was written, although the terms in which it appears are rather dissimilar from the speeches that they have made in support of the Amendment. One or two other points were raised by hon. Gentlemen and I am sorry that I have not been able to deal with them all in the course of what I have had to say.
I should like to finish by saying a word or two about the reserves situation. The right hon. Gentleman in talking about the reserves made one or two very good points and omitted one or two others. He talked about the actual level of the gold reserves. It is true that that is not the whole picture, but it is where things have changed and improved so much since 1947. The composition of our liabilities has changed very much for the better both in size and in the pattern of holding. The right hon. Gentleman is departing from his normal standards of fairness when he counts as a liability against us the contribution that we shall have to make for our increased quota in the Fund and omits the fact that we shall get drawing rights five times that amount.

There is also the position of the dollar shortage. The hon. Member for Orkney and Shetland (Mr. Grimond) also referred to this. It is true to say that to talk of a weak dollar is misleading. It may be a weak currency for a short time in purely technical terms, but to talk of it as weak currency in the long term is misleading. On the other hand, there is not now the world-wide shortage of dollars that there was in 1947. What is most impressive is the way the United States last year, when it had such a recession and such problems of unemployment, continued the very substantial outflow of dollars to the rest of the world. I see no reason why the dollar problem should re-emerge.

What has underlain most of the arguments of hon. Members opposite is their inability to get up to date in economic matters. They are always trying to solve the problems that no longer exist. In these matters of international currency they are still sitting slightly bemused in the debris of 1947. I can assure them of one thing; we agree entirely with them that it was a great mistake in 1947, and we should not have made it.

All their arguments lead to the conclusion that they will attempt, if they are ever by any misfortune returned to power, once again to run this economy 101 per cent, flat out on an inflationary basis and rely for maintaining the value of sterling on exactly that system of controls and regulations which proved utterly ineffective in former days. What emerges from the debate is, first, the solid practical case for the Government's move, and, secondly, the utter bankruptcy of the ideas of the Opposition and the inevitable fate of the country if they were ever returned to power.

Question put, That the words proposed to be left out stand part of the Question:—

The House divided: Ayes 308, Noes 255.

Division No. 24.]
AYES
[9.59 p.m.


Aitken, W. T.
Barber, Anthony
Biggs-Davison, J. A.


Allan, R. A. (Paddington, S.)
Barlow, Sir John
Bingham, R. M.


Amery, Julian (Preston, N.)
Barter, John
Birch, Rt. Hon. Nigel


Amory, Rt. Hn. Heathcoat (Tiverton)
Batsford, Brian
Bishop, F. P.


Anstruther-Gray, Major Sir William
Baxter, Sir Beverley
Black, Sir Cyril


Arbuthnot, John
Beamish, Col. Tufton
Body, R. F.


Armstrong, C. W.
Bell, Philip (Bolton, E.)
Bossom, Sir Alfred


Ashton, H.
Bell, Ronald (Bucks, S.)
Boyd-Carpenter, Rt. Hon. J. A.


Atkins, H. E.
Bennett, F. M. (Torquay)
Boyle, Sir Edward


Baldock, Lt.-Cmdr. J. M.
Bennett, Dr. Reginald
Braine, B. R.


Baldwin, Sir Archer
Bevins, J. R. (Toxteth)
Bromley-Davenport, Lt.-Col. W. H.


Balniel, Lord
Bidgood, J. C.
Brooke, Rt. Hon. Henry




Brooman-White, R. C.
Hesketh, R. F.
Molson, Rt. Hon. Hugh


Browne, J. Nixon (Craigton)
Hicks-Beach, Maj. W. W.
Moore, Sir Thomas


Bryan, P.
Hill, Mrs. E. (Wythenshawe)
Morrison, John (Salisbury)


Bullus, Wing Commander E. E.
Hill, John (S. Norfolk)
Mott-Radclyffe, Sir Charles


Burden, F. F. A.
Hinchingbrooke, Viscount
Nabarro, G. D. N.


Butcher, Sir Herbert
Hirst, Geoffrey
Nairn, D. L. S.


Campbell, Sir David
Hobson, John(Warwick &amp; Leam'gt'n)
Neave, Airey


Carr, Robert
Holland-Martin, C. J.
Nicholls, Harmar


Cary, Sir Robert
Holt, A. F.
Nicholson, Sir Godfrey (Farnham)


Chichester-Clark, R.
Hope, Lord John
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)


Clarke, Brig. Terence (Portsmth, W.)
Hornby, R. P.
Noble, Michael (Argyll)


Conant, Maj. Sir Roger
Hornsby-Smith, Miss M. P.
Nugent, G. R. H.


Cooke, Robert
Horobin, Sir tan
Oakshott, H. D.


Cooper, A. E.
Horsbrugh, Rt. Hon. Dame Florence
O'Neill, Hn. Phelim (Co. Antrim, N.)


Cooper-Key, E. M.
Howard, Hon. Greville (St. Ives)
Orr, Capt. L. P. S.


Cordeaux, Lt.-Col. J. K.
Howard, John (Test)
Orr-Ewing, C. Ian (Hendon, N.)


corfield, F. V.
Hughes Hallett, Vice-Admiral J.
Osborne, C.


Craddock, Beresford (Spelthorne)
Hughes-Young, M. H. C.
Page, R. G.


Crosthwaite-Eyre, Col. O. E.
Hurd, Sir Anthony
Pannell, N. A. (Kirkdale)


Crowder, Sir John (Finchley)
Hutchison, Michael Clark(E'b'gh, S.)
Partridge, E.


Crowder, petre (Ruislip—Northwood)
Hutchison, Sir Ian Clark (E'b'gh, W.)
Peel, W. J.


Cunningham, Knox
Hutchison, Sir James (Scotstoun)
Peyton, J. W. W.


Currie, G. B. H.
Hylton-Foster, Rt. Hon. Sir Harry
Pickthorn, Sir Kenneth


Dance, J. C. G.
Iremonger, T. L.
Pike, Miss Mervyn


Davidson, Viscountess
Irvine, Bryant Godman (Rye)
Pilkington, Capt. R. A.


Davies, Rt. Hon. Clement (Montgomery)
Jenkins, Robert (Dulwich)
Pitman, I. J.


D'Avigdor-Goldsmid, Sir Henry
Jennings, J. C. (Burton)
Pitt, Miss E. M.


Deedes, W. F.
Jennings, Sir Roland (Hallam)
Pott, H. P.


de Ferranti, Basil
Johnson, Dr. Donald (Carlisle)
Powell, J. Enoch


Digby, Simon Wingfield
Johnson, Eric (Blackley)
Price, David (Eastleigh)


Dodds-Parker, A. D.
Johnson, Howard (Kemptown)
Price, Henry (Lewisham, W.)


Donaldson, Cmdr. C. E. McA.
Jones, Rt. Hon. Aubrey (Hall Green)
Prior-Palmer, Brig. O. L.


Doughty, C. J. A.
Joseph, Sir Keith
Profumo, J. D.


Drayson, G. B.
Kaberry, D.
Ramsden, J. E.


du Cann, E. D. L.
Keegan, D.
Rawlinson, Peter


Dugdale, Rt. Hn. Sir T. (Ricnmond)
Kerby, Capt. H. B.
Redmayne, M.


Duncan. Sir James
Kerr, Sir Hamilton
Rees-Davies, W. R.


Duthie, W. S.
Kershaw, J. A.
Remnant, Hon. P.


Eccles, Rt. Hon. Sir David
Kimball, M.
Renton, D. L. M.


Eden, J. B. (Bournemouth, West)
Kirk, P. M.
Ridsdale, J. E.


Elliott, R. W. (Ne'castle upon Tyne, N.)
Lagden, G. W.
Rippon, A. G. F.


Emmet, Hon. Mrs. Evelyn
Lambton, Viscount
Roberts, Sir Peter (Heeley)


Errington, Sir Eric
Lancaster, Col. C. G.
Robertson, Sir David


Erroll, F. J.
Langford-Holt, J. A.
Robinson, Sir Roland (Blackpool, S.)


Farey-Jones, F. W.
Leather, E. H. C.
Robson Brown, Sir William


Fell, A.
Leavey, J. A.
Roper, Sir Harold


Finlay, Graeme
Leburn, W. G.
Ropner, Col. Sir Leonard


Fisher, Nigel
Legge-Bourke, Maj. E. A. H.
Russell, R. S.


Forrest, G.
Lennox-Boyd, Rt. Hon. A. T.
Scott-Miller, Cmdr. R.


Fort, R.
Lindsay, Hon. James (Devon, N.)
Sharples, R. C.


Fraser, Hon. Hugh (Stone)
Lindsay, Martin (Solihull)
Shepherd, William


Freeth, Denzil
Linstead, Sir H. N.
Simon, J. E. S. (Middlesbrough, W.)


Galbraith, Hon. T. G. D.
Llewellyn, D. T.
Smithers, Peter (Winchester)


Gammans, Lady
Lloyd, Rt. Hon. C. (Sutton Colbfield)
Smyth, Brig. Sir John (Norwood)


Garner-Evans, E. H.
Lloyd, Maj. Sir Guy (Renfrew, E.)
Soames, Rt. Hon. Christopher


George, J. C. (Pollok)
Lloyd, Rt. Hon. Selwyn (Wirral)
Spearman, Sir Alexander


Gibson-Watt, D.
Longden, Gilbert
Speir, R. M.


Glover, D.
Loveys, Walter H.
Spence, H. R. (Aberdeen, W.)


Glyn, Col. Richard H.
Low, Rt. Hon. Sir Toby
Stanley, Capt. Hon. Richard


Godber, J. B.
Lucas, Sir Jocelyn (Portsmouth, S.)
Stevens, Geoffrey


Goodhart, Philip
Lucas, P. B. (Brentford &amp; Chiswick)
Steward, Harold (Stockport, S.)


Gough, C. F. H.
Lucas-Tooth, Sir Hugh
Steward, Sir William (Woolwich, W.)


Gower, H. R.
McAdden, s. J.
Stoddart-Scott, Col. Sir Malcolm


Graham, Sir Fergus
Macdonald, Sir Peter
Storey, S.


Grant, Rt. Hon. W. (Woodside)
Mackeson, Brig. Sir Harry
Stuart, Rt. Hon. James (Moray)


Grant-Ferris, Wg Cdr. R. (Nantwich)
McLaughlin, Mrs. P.
Studholme, Sir Henry


Green, A.
Maclay, Rt. Hon. John
Summers, Sir Spencer


Gresham Cooke, R.
Maclean, Sir Fitzroy (Lancaster)
Sumner, W. D. M. (Orpington)


Grimond, J.
McLean, Neil (Inverness)
Taylor, Sir Charles (Eastbourne)


Grimston, Hon. John (St. Albans)
Macleod, Rt. Hn. Iain (Enfield, W.)
Taylor, William (Bradford, N.)


Grimston, Sir Robert (Westbury)
Macmillan, Rt. Hn. Harold (Bromley)
Teeling, W.


Grosvenor, Lt.-Col. R. G.
Macmillan, Maurice (Halifax)
Temple, John M.


Gurden, Harold
Macpherson, Niall (Dumfries)
Thomas, Leslie (Canterbury)


Hall, John (Wycombe)
Maddan, Martin
Thomas, P. J. M. (Conway)


Hare, Rt. Hon. J. H.
Maitland, Cdr. J. F. W. (Horncastle)
Thompson, Kenneth (Walton)


Harris, Frederic (Croydon, N.W.)
Manningham-Buller, Rt. Hn. Sir R.
Thompson, R. (Croydon, S.)


Harris, Reader (Heston)
Markham, Major Sir Frank
Thornton-Kemsley, Sir Colin


Harrison, A. B. C. (Maldon)
Marlowe, A. A. H.
Tiley, A. (Bradford, W.)


Harrison, Col. J. H. (Eye)
Marples, Rt. Hon. A. E.
Tilney, John (Wavertree)


Harvey, Sir Arthur Vere (Macclesf'd)
Mathew, R.
Turner, H. F. L.


Harvey, John (Walthamstow, E.)
Maudling, Rt. Hon. R.
Turton, Rt. Hon. R. H.


Hay, John
Mawby, R. L.
Vane, W. M. F.


Heald, Rt. Hon. Sir Lionel
Maydon, Lt.-Comdr. S. L. C.
Vaughan-Morgan, J. K.


Henderson, John (Cathcart)
Medlicott, Sir Frank
Vickers, Miss Joan


Henderson-Stewart, Sir James
Milligan, Rt. Hon. W. R.
Vosper, Rt. Hon. D. F.







Wakefield, Sir Wavell (St. M'lebone)
Webster, David
Wood, Hon. R.


Walker-Smith, Rt. Hon. Derek
Whitelaw, W. S. I.
Woollam, John victor


Wall, Patrick
Williams, Paul (Sunderland, S.)
Yates, William (The Wrekln)


Ward, Rt. Hon. G. R. (Worcester)
Williams, R. Dudley (Exeter)



Ward, Dame Irene (Tynemouth)
Wills, Sir Gerald (Bridgwater)
TELLERS FOR THE AYES:


Watkinson, Rt. Hon, Harold
Wilson, Geoffrey (Truro)
Mr. Legh and


Webbe, Sir H.
Wolrige-Gordon, Patrick
Mr. Edward Wakefield.




NOES


Abse, Leo
Grenfell, Rt. Hon. D. R.
Mitchison, G. R.


Ainsley, J. W.
Grey, C. F.
Monslow, W.


Albu, A. H.
Griffiths, David (Rother Valley)
Moody, A. S.


Allaun, Frank (Salford, E.)
Griffiths, Rt. Hon. James (Llanelly)
Morris, Percy (Swansea, W.)


Allen, Arthur (Bosworth)
Griffiths, William (Exchange)
Morrison,Rt.Hn.Herbert (Lewis'm, S.)


Allen, Scholefield (Crewe)
Hale, Leslie
Mort, D. L.


Awbery, S. S.
Hall, Rt. Hn. Glenvil (Colne Valley)
Moss, R.


Bacon, Miss Alice
Hamilton, W. W.
Moyle, A.


Balfour, A.
Hannan, W.
Mulley, F. W.


Bellenger, Rt. Hon. F. J.
Hastings, S.
Neal, Harold (Bolsover)


Bence, C. R. (Dunbartonshire, E.)
Hayman, F. H.
Noel-Baker, Rt. Hon. P. (Derby, S.)


Benn, Hn. Wedgwood (Bristol, S.E.)
Healey, Denis
O'Brien, Sir Thomas


Benson, Sir George
Henderson, Rt. Hn. A. (Rwly Regis)
Oliver, G. H.


Beswick, Frank
Hewitson, Capt. M.
Oram, A. E.


Bevan, Rt. Hon. A. (Ebbw Vale)
Hobson, C. R. (Keighley)
Oswald, T.


Blackburn, F.
Holman, P.
Owen, W. J.


Blenkinsop, A.
Holmes, Horace
Padley, W. E.


Blyton, W. R.
Houghton, Douglas
Paget, R. T.


Boardman, H.
Howell, Charles (Perry Barr)
Paling, Rt. Hon. W. (Dearne Valley)


Bottomley, Rt. Hon. A. G.
Howell, Denis (All Saints)
Paling, Will T. (Dewsbury)


Bowden, H. W. (Leicester, S.W.)
Hoy, J. H.
Palmer, A. M. F.


Bowles, F. G.
Hughes, Cledwyn (Anglesey)
Pannell, Charles (Leeds. W.)


Boyd, T. C.
Hughes, Emrys (S. Ayrshire)
Pargiter, G. A.


Brockway, A. F.
Hughes, Hector (Aberdeen, N.)
Parker, J.


Broughton, Dr. A. D. D.
Hunter, A. E.
Parkin, B. T.


Brown, Rt. Hon. George (Belper)
Hynd, H. (Accrington)
Paton, John


Brown, Thomas (Ince)
Hynd, J. B. (Attercliffe)
Peart, T. F.


Burke, W. A.
Irvine, A. J. (Edge Hill)
Pentland, N.


Burton, Miss F. E.
Irving, Sydney (Dartford)
Plummer, Sir Leslie


Butler, Herbert (Hackney, C.)
Isaacs, Rt. Hon. G. A.
Prentioe, R. E.


Butler, Mrs. Joyce (Wood Green)
Janner, B.
Price, J. T. (Westhoughton)


Castle, Mrs. B. A.
Jay, Rt. Hon. D. P. T.
Price, Philips (Gloucestershire, W.)


Champion, A. J.
Jeger, George (Goole)
Probert, A. R.


Chapman, W. D.
Jeger, Mrs.Lena(Holbn &amp; St.Pncs, S.)
Proctor, W. T.


Chetwynd, G. R.
Jenkins, Roy (Steohford)
Pursey, Cmdr. H.


Cliffe, Michael
Johnson, James (Rugby)
Randall, H. E.


Clunie, J.
Johnston, Douglas (Paisley)
Rankin, John


Coldrick, W.
Jones, Rt.Hon.A. Creech (Wakefield)
Redhead, E. C.


Collick, P. H. (Birkenhead)




Corbet, Mrs. Freda
Jones, David (The Hartlepools)
Reeves, J.


Craddock, George (Bradford, s.)
Jones, Elwyn (W. Ham, S.)
Reid, William


Cronin, J. D.
Jones, Jack (Rotherham)
Reynolds, G. W.


Crossman, R. H. S.
Jones, J. Idwal (Wrexham)
Robens, Rt. Hon. A.


Cullen, Mrs. A.
Jones, T. W. (Merioneth)
Roberts, Albert (Normanton)


Dalton, Rt. Hon. H.
Key, Rt. Hon. C. W.
Roberts, Goronwy (Caernarvon)


Darling, George (Hillsborough)
King, Dr. H. M.
Robinson, Kenneth (St. Pancras, N.)


Davies, Ernest (Enfield, E.)
Lawson, G. M.
Rogers, George (Kensington, N.)


Davies, Harold (Leek)
Ledger, R. J.
Ross, William


Davies, Stephen (Merthyr)
Lee, Frederick (Newton)
Royle, C.


Deer, G.
Lee, Miss Jennie (Cannock)
Shinwell, Rt. Hon. E.


de Freitas, Geoffrey
Lever, Harold (Cheetham)
Short, E. W.


Delargy, H. J.
Lever, Leslie (Ardwick)
Silverman, Julius (Aston)


Diamond, John
Lewis, Arthur
Silverman, Sydney (Nelson)


Dodds, N. N.
Lindgren, G. S.
Simmons, C. J. (Brierley Hill)


Donnelly, D. L.
Logan, D. G.
Skeffington, A. M.


Dugdale, Rt. Hn, John (W, Brmwoh)
Mabon, Dr. J. Dickson
Slater, Mrs. H. (Stoke, N.)


Ede, Rt. Hon. J. C.
McAlister, Mrs. Mary
Slater, J. (Sedgefield)


Edelman, M.
McCann, J.
Smith, Ellis (Stoke, S.)



MacColl, J. E.
Snow, J. W.


Edwards, Rt. Hon. John (Brighouse)
MacDermot, Niall
Sorensen, R. W.


Edwards, Rt. Hon. Ness (Caerphilly)
McGhee, H. G.
Soskice, Rt. Hon. Sir Frank


Edwards, Robert (Bilston)
McInnes, J.
Sparks, J. A.


Edwards, W. J. (Stepney)
McKay, John (Wallsend)
Spriggs, Leslie


Evans, Albert (Islington, S.W.)
McLeavy, Frank
Steele, T.


Evans, Edward (Lowestoft)
MacMillan, M. K. (Western Isles)
Stonehouse, John


Fernyhough, E.
MacPherson, Malcolm (Stirling)
Stones, W. (Consett)


Finch, H. J.
Mahon, Simon
Strachey, Rt. Hon. J.


Fitch, Alan
Mainwaring, W. H.
Strauss, Rt. Hon. George (Vauxhall)


Fletcher, Eric
Mallalieu, E. L. (Brigg)
Stross,Dr.Barnett(Stoke-on-Trent,C.)


Forman, J. C.
Mallalieu, J. P. W. (Huddersfd, E.)
Summerskill, Rt. Hon. E.


Fraser, Thomas (Hamilton)
Mann, Mrs. Jean
Swingler, S. T.


Gaitskell, Rt. Hon. H. T. N.
Marquand, Rt. Hon. H. A.
Sylvester, G. O.


George, Lady Megan Lloyd(Car'then)
Mason, Roy
Taylor, Bernard (Mansfield)


Gibson, C. W.
Mellish, R. J.
Taylor, John (West Lothian)


Gooch, E. G.
Messer, Sir F.
Thomas, George (Cardiff)


Greenwood, Anthony
Mikardo, Ian
Thomas, Iorwerth (Rhondda, W.)







Thomson, George (Dundee, E.)
Wells, William (Walsall, N.)
Willis, Eustace (Edinburgh, E.)


Thornton, E.
Wheeldon, w. E.
Wilson, Rt. Hon. Harold (Huyton)


Timmons, J.
White, Mrs. Eirene (E. Flint)
Winterbottom, Richard


Tomney, F.
White, Henry (Derbyshire, N.E.)
Woodburn, Rt. Hon. A.


Ungoed-Thomas, Sir Lynn
Wigg, George
Woof, R. E.


Usborne, H. C.
Wilcock, Group Capt. C. A. B.
Yates, V. (Ladywood)


Viant, S. P.
Wilkins, W. A.
Younger, Rt. Hon. K.


Warbey, W. N.
Willey, Frederick
Zilliacus, K.


Watkins, T. E.
Williams, David (Neath)



Weitzman, D.
Williams, Rt. Hon. T. (Don Valley)
TELLERS FOR THE NOES:


Wells, Percy (Faversham)
Williams, Richard (Openshaw)
Mr. Popplewell and Mr. Pearson.

Bill read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Bryan.]

Committee Tomorrow.

EUROPEAN MONETARY AGREEMENT [MONEY]

[Queen's Recommendation signified]

Considered in Committee under Standing Order No. 84 (Money Committees.)

[Sir GORDON TOUCHE in the Chair]

Resolved,
That, for the purposes of any Act of the present Session to make certain provisions of a financial nature in connection with the operation of the European Monetary Agreement, it is expedient to authorise—

(a) the payment out of the Consolidated Fund of any sums required or authorised to be so paid by or by virtue of the said Act:
(b) the raising of money under the National Loans Act, 1939, for the purpose of providing sums required to be paid out of the Consolidated Fund by the said Act of the present Session; and
(c) the payment into the Exchequer of any sums authorised to be so paid by the said Act of the present Session.—[Mr. Amory.]

Resolution to be reported.

Report to be received Tomorrow.

MENTAL HEALTH [MONEY]

Resolution reported,
That, for the purposes of any Act of the present Session to repeal the Lunacy and Mental Treatment Acts, 1890 to 1930, and the Mental Deficiency Acts, 1913 to 1938, and to make fresh provision with respect to the treatment and care of mentally disordered persons and with respect to their property and affairs; and for purposes connected with the matters aforesaid, it is expedient to authorise the payment out of moneys provided by Parliament of—

(a) any expenditure of the Minister of Health or a Secretary of State under the said Act of the present Session other than expenditure on grants to local authorities:
(b) any sums required for the payment of fees and expenses to medical practitioners acting under provisions substituted by that Act for the Lunacy (Vacating of Seats) Act, 1886:
(c) any increase attributable to the said Act of the present Session in the sums payable by way of General Grant, Rate-deficiency Grant or Exchequer Equalisation Grant under the enactments relating to local government in England and Wales or in Scotland;
(d) any increase attributable to the said Act of the present Session in the sums payable out of moneys provided by Parliament under any enactment other than the enactments relating to the grants referred to in paragraph (c) of this Resolution.

Resolution agreed to.

FLOODING, LINCOLNSHIRE

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Brooman-White.]

10.13 p.m.

Mr. Geoffrey de Freitas: I wish to refer to the problem of the floods in Lincoln and the surrounding countryside. It is a substantial problem known to the Ministry of Agriculture, Fisheries and Food as well as to the citizens in that area. I have received a large number of letters from citizens of Lincoln ever since July. The volume has increased during the last few days. The writers protest about the situation in which they find themselves.
The county newspaper, the Lincolnshire Echo, reported only last Saturday that the local authority had stated that the floods have gone down so that no longer was there danger to over 1,000 houses on the Boultham Estate. The Lincolnshire Echo reported that the Witham, Brayford and Fossedyke were even higher than in July. The seriousness of these floods is common knowledge, especially among those who live the lower part of the city.
I have had a great deal of correspondence from farmers and from the National Farmers' Union. I see the hon. Member for Gainsborough (Mr. Kimball) in his place. I shall certainly give him time to speak on behalf of his constituents. The reason why I deliberately chose as my title for the Adjournment debate "Lincoln and Lincolnshire" is that this is not merely a city or county problem. It has to be tackled altogether.
The National Farmers' Union pointed out that 4,000 acres were flooded and that winter corn had been damaged. A true measure of the problem is that only in July, six months ago, floods reduced the cereal yield by 50 per cent., and even more in the case of root crops, where they could be harvested at all.
I know that the Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food is well aware of the problem, because it happens that his constituency adjoins mine on the other side and is affected, too. During the last weekend a senior drainage engineer from the Department has been in Lincoln, someone who originally came from that

part of the country; so probably he has known of the problem for many years. The city and county authorities, the Lincolnshire River Board the Upper Witham Internal Drainage Board and the British Transport Commission all know about the problem.
The Government must take into account that things are not going well. First, there is no evidence that the problem has been solved. The expedients which have been tried have failed. Secondly, there is no confidence on the part of the public in the present methods of constituting and financing river and drainage boards. Differences between the boards and authorities, the public believe, are leading to recriminations and buck passing. I will illustrate all these points.
On the first point, after 1947"in the heart of the City of Lincoln a new sluice was built at Brayford. Yet the water in these last few days in Brayford itself has been dangerously high. I illustrate the second point by what my constituents feel about the drainage board, to which they contribute, as ratepayers, 60 per cent, of the amount contributed locally, after the central Government's grant has been made. Yet my constituents have only four representatives on the board out of 23. A measure of the importance which the city corporation attaches to these matters is that nearly every time they are discussed, whether by the Board or at ad hoc meetings, the corporation delegation is led by the leader of the council. Alderman Snook.
The third point, that differences between the different boards and authorities are leading to recrimination and buck passing, is illustrated by the fact that farmers tell me the Transport Commission is to blame because it is trying to maintain the level of navigation to at least 5 ft. Yet it is under an obligation to maintain that level for navigation and I very much hope it will continue to do so. I do not want to debate the whole subject of whether it is desirable for the river to be preserved for navigation. We can do that in a week or so, when the subject comes up for discussion, but the fact is that the Transport Commission is under an obligation to preserve the river for navigation and farmers allege that that is one of the causes of the flooding which they face.
Then there is the conflict between the boards and the city, particularly on the amount of money ratepayers have to contribute and the small amount of representation. In recent weeks there have been rumours of disagreement between the Ministry and the board on certain technical engineering matters. When the Government have taken these matters into account, as I trust they will, they must do something else. They cannot sit around like Canute's courtiers, waiting in the hope that something will not happen. Things do happen; the water does come up.
I suggest, first, that the Government must immediately consider a bold scheme embracing the whole of the river. We cannot pay off the city against the county and we cannot play off the upper parts of the Witham against the lower parts of Holland. I see that the hon. Member for Holland with Boston (Sir H. Butcher) agrees. I suggest that the Government should consider widening the river above the city and below the city and then pumping at Boston so that water can go out to the sea whatever the state of the tide.
I do not need to remind the Joint Parliamentary Secretary of this, but few people realise that although Lincoln is many miles from the sea the river is tidal far up the river towards Lincoln. Whatever we do we must take account of that fact. The first point is to consider a bold scheme for drastic relief in this way. Secondly, the Government must immediately inquire into the present system of financing and constituting the authorities and boards. Thirdly, the Government must assure the ratepayers of Lincoln and Lincolnshire that central Government money will not be allowed to stand in the way of a well-thought-out engineering scheme.
I am encouraged by the words the Joint Parliamentary Secretary used on 23rd July last year, when he said that he foresaw no difficulty in financing for the river boards. I do not want to quote him out of context. It was not exactly in this context, but for a different scheme. I hope that the Government can say there will not be financial problems in financing a bold scheme if that is thought to be desirable technically.
As all Lincoln and Lincolnshire Members know, the River Witham has a long history. It has served the county well for thousands of years and it serves us well today for angling, for navigation, for watering stock, and as a foreground for the British Railways' posters advertising beautiful Britain, because we have the Witham at the Glory Hole and the Witham at the Brayford. But the Witham must be disciplined. It is nonsense to reach a stage of material development where the householder in Lincoln and the farmer in the county can look at his television set and see the triumphs of engineering and rockets dashing into space, and then go outside and find his fields flooded and his kitchen under water twice a year.
I am reminded by my hon. Friend the Member for Hemsworth (Mr. Holmes) that this happens twice a year. My hon. Friend, who previously was not my constituent, has come to live in my constituency and has become a very good constituent. I hope that I shall have his vote at the next General Election.
We cannot be courtiers of King Canute about this; we cannot merely wish that it should not happen, because it does happen, now, unfortunately, not once but twice a year. I make no apology for returning to the subject tonight. Nothing is gained unless such a problem is raised continually in the House. I know that from the history of Pelham Bridge. In this case, I have the advantage of the well-trained and well-tuned ear of the Join; Parliamentary Secretary, who has a direct interest in this matter.

10.27 p.m.

Mr. Marcus Kimball: I am grateful to the hon. Member, for Lincoln (Mr. de Freitas) for what he said and for giving me the opportunity to occupy one minute of the debate, because this is riot a party political matter. It is a problem which affects not only the City of Lincoln but the whole of Lincolnshire and all hon. Members who represent the city and the county.
The distressing thing is that the flooding which happened last week is exactly similar to that which happened in July, and until my hon. Friend the Joint Parliamentary Secretary, who I know gives the utmost priority to this problem, can decide on a way of getting the water quickly round Lincoln, the difficulty will


persist. The difficulty arises from the fact that the water is blocked at the City of Lincoln and, with all the water which is held up by the City, between the River Trent and Lincoln, we can do nothing more.
I hope that in reply to the debate my hon. Friend will say something about a scheme for getting the water away, round Lincoln, and, most important of all, something about dealing with the floods on the River Till and the tributaries of the Till, where most of the damage is done.

10.28 p.m.

The Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. J. B. Godber): I am glad that the hon. Member for Lincoln (Mr. de Freitas) has initiated this debate tonight and given me the opportunity to make a further statement on the position in relation to the flooding problems of Lincoln and of the agricultural land, mainly upstream of Lincoln, which has been affected twice in the last twelve months. I am afraid that I shall not have time to go into this matter at length, because it is involved, but in the course of my remarks I will try to pick up some of the points which the hon. Member raised.
I should like to take up the story from the point which we had reached when we last discussed this problem in the House in July last year on the instigation of my hon. Friend the Member for Gains-borough (Mr. Kimball), as the problem is still, in essence, the same as it was then. The last week has seen a recurrence of flooding, particularly in the area of the River Till and, to a lesser degree, in the City of Lincoln itself. I am glad to think, however, that the flooding this time was of relatively short duration; I understand from the hon. Member for Lincoln that 4,000 acres were flooded and I very much hope that the figure has decreased by now. I hope that the damage done will prove to be very much less serious than that last summer.
In relation to the River Till, which my hon. Friend the Member for Gains-borough mentioned in particular, I understand that an improvement scheme is being prepared for the main river length of the River Till and that it will be submitted by the River Board to my regional

engineer in the next week or two. If this is approved—and if it is a sound engineering project we shall seek to approve it as quickly as possible—it will stop the overflow of the River Till main river bank. That, I think, is a most important point for the constituency of my hon. Friend.
The problems of drainage in this area are very complicated, partly by the number of authorities involved as, for instance, in the maintenance of the Fossdyke, and the position of the British Transport Commission in relation to the banks of the Witham below Lincoln. The main problem, however, remains the bottleneck through the City of Lincoln itself, and the solution of this problem forms the central part of the major improvement scheme put forward by the Lincolnshire River Board, to which I referred in the debate on 22nd July last. This is the core of the problem, and as my time is very short I should like to devote my remarks mainly to it.
The Board submitted a scheme to my Ministry for approval, in principle, towards the end of last July. The total cost of the scheme was approaching £1 million. It was designed to deal with the needs of the Upper Witham, the portion through Lincoln itself and the consequent need for work on the Witham below Lincoln. In August, detailed discussions took place between the Board and senior officials of my Ministry, and between the Board and the British Transport Commission, and during this month also the N.F.U. made representations, saying that in its view the proposed scheme would not be adequate to serve the need. Steps were also taken by my Ministry to try to help resolve the problems between the River Board and the Transport Commission.
As a result of this, a further meeting took place at the Ministry of Transport on 4th September, while on 9th September, Sir James Turner led a deputation to the Ministry to express doubts about the capacity of the scheme put forward by the River Board to deal with the possible flow of water through Lincoln. I mention these things to show their interlocking. My senior engineers did not feel that they could reach a conclusion about the scheme until they were provided with much fuller plans by the River Board, and a further meeting took place with the Board's engineers on 25th September, as a result of which the Board


agreed to make further investigations. Further meetings took place in October and November, and still further details had to be called for in relation to the scheme put forward. In the meantime, the negotiations with the British Transport Commission were making more satisfactory progress with a view to establishing a permanent solution of the responsibility of maintaining the banks of the river below Lincoln.
The need for all these many consultations must, I know, be a source of irritation to all those who are anxiously awaiting the commencement of the actual work on the scheme; but, with a scheme of this magnitude, it is essential that we should be satisfied that the work to be undertaken will provide a lasting solution to the problem. In this connection, the House will be interested to know that, as a result of discussions with my Ministry, the engineer to the River Board has just revised his figures of the maximum likely flow through Lincoln in flood conditions, and is about to advise his Board that exceptional flood conditions could involve a flow through Lincoln 25 per cent, greater than the quantity allowed for in the scheme submitted last year.
This tends to confirm the fears expressed on behalf of the N.F.U. by Sir James Turner in September, and my right hon. Friend has, this week, seen the Chair man of the Lincolnshire River Board, and has asked him to defer the scheme put forward originally, and to have urgent engineering assessments made of the practicability of providing a new channel to by-pass Lincoln on the southern side—

Mr. de Freitas: To by-pass Lincoln on the southern side. Does that mean it will go through Lincoln itself or really be a by-pass round the city?

Mr. Godber: Yes, it will be a by-pass around the city. That is the suggestion which has been put forward.

Mr. George Brown (Belper): I understand that, and we are all very grateful. Would it not help to do this if the Government came to some conclusion about the Heneage Report. I received the Report of that Committee nearly ten years ago, but it has still not been implemented.

Mr. Godber: If there were time, I should be delighted to deal with the topic

of the Heneage Report, but the difficulty is that the drainage in question is outside the scope of the Heneage Report, because the area is already a drainage area and therefore the Report has little bearing on this problem. I am surprised that the right hon. Gentleman did not realise that. It is a matter which I should be happy to debate if I had enough time, but it would not be fair to the hon. Member for Lincoln to do so now.
As I was saying before the right hon. Member for Belper (Mr. G. Brown) intervened—and we all welcome his presence tonight—the problems which we have here are that we have to try to push forward, having decided that we must Investigate this alternative scheme, as quickly as we can. This is bound to be a highly complicated matter, but I have expressed my urgent hope to the River Board that the full survey plan for this alternative route will be completed in a matter of six months from now.
In the meantime, it is clear that considerable work will be called for downstream of Lincoln, whatever the final decision on the passage through or around Lincoln itself. The Chairman of the River Board has today been asked to consider urgently what works his Board would be prepared to recommend to be carried out during the present year on the main watercourse downstream of Lincoln. That was a point which the hon. Member for Lincoln had very much in mind. That is the line we are taking with the River Board, but in this respect the Board is an autonomous body and although we can urge it to take action, we must leave the final decision in its hands.
In the meantime, since the disastrous floods of last summer, some preparatory work has already been carried out on the River Brant while the North Hykeham pumping station is in course of erection and the Upper Witham Drainage Board is going ahead with its plans for further pumping stations on the Oxpastures Drain and on the Bassingham and Burton Drains. The project is very extensive and it depends for its success on an effective solution for the bottleneck through Lincoln.
The negotiations which have already taken place may appear to have occupied a considerable period of time, but if this very full consideration does lead to a more secure long-term solution, then both


the people of Lincoln and the farmers of Lincolnshire, for both of whom the hon. Member has spoken, will have reason to be glad when these plans in the long-term prove their value.
The hon. Member asked me one or two questions, one of which concerned the City of Lincoln's representation on the Upper Witham Internal Drainage Board. As I understand the position, it is that since the Board was set up, the number of dwellings in Lincoln has considerably increased. To get a re-assessment to enable the city to have more representatives, the city must make representations to the River Board and ask the Board to put forward an amending scheme for the internal drainage board concerned. The position can be dealt with under present legislation. What the City of Lincoln has to do is to ask the River Board to bring forward an amending scheme covering this internal drainage board. The River Board has powers to amend the scheme in such a way as to provide greater representation for Lincoln.

Mr. de Freitas: Will the representation be increased to anything like the 60 per cent, which is Lincoln's financial contribution to the Board? Will it be increased by four, five, or six members out of twenty-three?

Mr. Godber: It could bring it up considerably. Without the facts and figures I should not like to say to what extent, but there is a definite provision to enable them to increase their representation, which I am sure will be welcomed by the hon. Member.

Mr. de Freitas: It is better than nothing.

Mr. Godber: Well, I am sure that, with the high standard of representation which Lincoln enjoys, they will be able to hold their own—[Interruption.]If the right hon. Member for Belper wishes a debate

on the Heneage Report, I should be happy to debate it with him, if he will put down a Motion on another day. Tonight I am trying to deal with the subject raised by the hon. Member for Lincoln.
The hon. Member suggested that there should be some sort of overall review because of disagreement, to which he referred, between different bodies. What I have said will indicate that we have achieved a large measure of agreement about what is required. It has been difficult to get complete agreement, but we have reached the stage where there is agreement on what is required. Now it is purely a matter of engineering problems which are great, as we have to get through the difficult bottleneck in Lincoln, but I do not think that there is any need for a special review or inquiry. Representatives of the River Board met my Ministry today, and we have gone into this matter with them.
I hope that will show that we realise the importance of this matter and are pressing on as fast as we can. It affects the constituency of my hon. Friend the Member for Gainsborough and my own constituency, and I can assure the House that anything I can do to hurry this matter forward will be done. I hope that the hon. Member for Lincoln will realise from what I have said that we are doing all we can. I shall look forward to the pleasure of replying to the right hon. Member for Belper on a future occasion on the subject of the Heneage Report—

Mr. G. Brown: The hon. Member will be on the Opposition side of the House on that occasion.

Mr. Godber: If the right hon. Gentleman thinks that, he will be gravely disappointed.

Question put and agreed to.

Adjourned accordingly at eighteen minutes to Eleven o'clock.